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Major events in the 2008 DRAM industry

5 January 2009 Semiconductors

Taipei, December 30, 2008 --- Looking back at 2008, WW DRAM industry has faced severe oversupply and industry structural problems. In 1H08, most 8 inch fabs has switched to non-DRAM productions. Vendors switching from 8 inch DRAM capacity to 12 inch capacity to lower DRAM chip cost has claimed that they will migrate to 50nm process in 2009. At this point, the whole industry believes that the recovery will come in 2H08. After all, the global financial crisis once again pushed the DRAM industry into the frozen period, and not only the DDR2 1Gb eTT chip price fell once below its historical low 0.58 USD, but the net cash outflow put the DRAM vendors in a devastating position. After the operating crisis emerged, consolidation commenced and hopes to bring the market mechanism back to normal again.

A. According to DRAMeXchange, DRAM chip price has dropped nearly 75% in 2008 and the industry total loss from Q108 to Q308 was more than 8 billion USD. DRAM 667 Mhz 1Gb chip price fell from high of 2.29 USD to the low of 0.58 USD, a 75% drop range. The price was not only lower than the cash cost (exclude depreciation) 1 USD but also close to the back end testing and packaging price 0.6 to 0.7 USD, and expose the DRAM vendors to the operating crisis. The WW DRAM industry lost 8 billion USD in the first three seasons of 2008.

B. Nanya gave up Qimonda, Micron officially entered Inotera and gained half of its capacity.
Nanya officially announced its alliance with Micron on March 3rd, and will co-develop the products of under 50 nm process. This also means the relationship between Qimonda and Inotera had changed. On October 12th, Micron officially announced it gained the 35.6% Inotera stake of Qimonda which worth about 400 million USD. The Micron technology camp officially formed.

C. The stack technology took the lead and trench technology faded.
In 2006, the trench technology camp once accounted for 23% of the market share. Along with the technology development bottle neck, the stack technology fell six months to one year behind. In 2008, the market share declined to 8%, which means the stack technology had gained 92% market share. In 2008, Qimonda announced its new Buried Wordline technology, the trench technology will be history.

D. Oversupply drove the capacity cut
After PSC first announced capacity cut this September, Elpida, Promos, Nanya, and Inotera continued to follow. WW DRAM capacity decreased nearly 20%. Recently the Taiwanese vendors are the most aggressive ones to cut capacity, and have cut about 29% capacity which is the most among all vendors. Capacity cut not only can reserve cash for the vendors to survive through the industry winter, but also can speed up the market inventory consumption, lower the inventory level, and let the market go back to its normal market mechanism.

E. The uniting of Taiwanese, American, and Japanese DRAM vendors, to fight against the Korean vendors
After Samsung announced it’s 100% annual bit growth target, with its title of WW DRAM leader, Samsung would like to see some other DRAM vendors being driven out of the market. The Taiwanese vendors bonded themselves closer to their technology partners Elpida and Micron with closer cooperating relationship in order to survive, forming two alliances with Micron and Elpida as the leaders, to fight against the Koreans.

F. Government bails out the DRAM industry
The war among DRAM vendors has become a war between nations. German company Qimonda has gained support from Saxony government, bank, and its mother company Infinion with the amount of 455 million USD. The Korean company Hynix also has received 550 million USD support from its creditor banks. The Taiwanese government has also prepared its 100billion NTD National Development Fund to bail out the Taiwanese DRAM industry.

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