May 29, 2007 – Samsung, Hynix, and other South Korean DRAM memory suppliers have been riding atop the memory wave, but slumping prices (partly of those firms’ own doing) could topple Korea as the memory manufacturing hub by the end of this decade, according to new data from iSuppli Corp.

Samsung and Hynix together hold 45% of global DRAM revenue vs. 17% for Taiwan and Chinese firms, but that marketshare gap is much closer for total DRAM unit production — 47% for Samsung/Hynix vs. 31% for Taiwan/China, noted iSuppli president/CEO Derek Lidow, speaking at a forum in Korea. He projects that DRAM unit production gap will further close in 2008 to 46% vs. 35%, and Taiwanese/Chinese suppliers could surpass Korea in terms of DRAM manufacturing capacity by 2010.

Extensive capacity expansions by South Korean DRAM companies have boosted those companies’ businesses, but have also contributed significantly to the ongoing collapse in memory pricing. PC OEMs are already stocking up on cheap DRAM, requesting devices at bargain-basement prices at or even below cash production costs.

In response, Korean manufacturers will soon slow down their DRAM output in the next year, Lidow says, because they can shift fairly easily to NAND output with better long-term profit margins. That will set the stage for Taiwanese/Chinese suppliers, who are currently increasing their output, to possibly surpass Korea in terms of DRAM manufacturing capacity by 2010, he noted.

While Korean suppliers’ brand leadership is not seen in danger (much of the Taiwan/China production is private-label and destined to be sold under other brand names e.g. Qimonda and Elpida), the nation’s pedigree as a strategic chip manufacturing base faces a significant challenge, Lidow noted. “There are many more Taiwanese and Chinese companies that can invest in such capital-intensive industries than there are Korean memory suppliers,” he said in a statement. “Korea’s manufacturing and investment base is highly concentrated and this makes it very challenging for the nation to maintain long-term leadership in capital-intensive areas, in spite of its superior technology and operational excellence.”

Korean suppliers still dominate both DRAM and NAND flash markets, which iSuppli projects will grow 35% and 74% from 2006-2010, respectively, to $45.7 billion and $21.5 billion. “However, it will be very challenging for them to keep their lead in both spaces,” Lidow stated, noting that competitors outside of Taiwan and China are forming partnerships to compete against top memory suppliers.

Regional share of global DRAM unit production
(% of unit production)

……………….2002…………2003…………2004…………2005…………2006…………2007…………2008

Korea……….41.3%……….41.2%……….43.5%……….41.4%……….39.6%……….47.3%……….46.1%
Taiwan/
China……….17.5%……….18.0%……….20.3%……….27.3%……….32.4%……….30.9%……….34.8%
Others……….41.3%……….40.8%……….36.2%……….31.3%……….28.0%……….21.8%……….19.1%

Source: iSuppli Corp.