September 23, 2010 – DRAM manufacturing costs are on the rise for the first time in four years, raising questions about production expenses in the memory industry, but things should improve in a few quarters, according to a new report from research firm iSuppli.

Average production cost for DRAM rose to $2.03/GB in 2Q10, up from $2.00/GB in the previous quarter — that’s only a 1.2% increase, but it’s the first sequential increase in four years, and starkly contrasts a historical -9.2% average quarterly trend stretching back to 2005 (a trend that slowed to -1.7% Q/Q in the past year).

Quarterly sequential DRAM manufacturing costs changes. (Source: iSuppli)

So what’s happening? The easy answer is that making memory chips is getting more complex and technologically tricky; learning new technologies such as immersion lithography needed for node migration will take some time. More specifically, says Mike Howard, iSuppli’s senior analyst for DRAM, cost increases can be traced to two of the sector’s biggest suppliers: Japan’s Elpida Memory (+4%) and Taiwan’s Nanya Technology (+11%). In Nanya’s case it is migrating from older trench technology to a stacked process, which has hurt yields and driven up cost/bit. Yield improvements in the coming quarters should bring these costs back down significantly.

For Elpida, its woes are due to a change in cost structure as it outsources manufacturing to bolster its own constrained capacity, purchasing DRAM directly from Taiwanese partners at higher costs. It, too, should see its costs go down as it sorts out this new cost structure.