Issue



Are DRAMs a Falling star?


11/01/1996







Are DRAMs a falling star?

Peter N. Dunn, Senior News Editor

Dynamic random access memories (DRAMs) have been the mercurial star of the semiconductor world over the last couple of years. They accounted for an unprecedentedly large proportion of the overall chip market in 1995 (according to market researcher Integrated Circuit Engineering), as end-user demand overwhelmed fab capacity and kept prices at exceptionally high levels. But 1996 brought a combination of softening demand and many new fabs ramping up, with a resulting price crash that made PC power users happy but spoiled the financial plans of many producers.

So, what next?

Ronald Bohn, principal analyst for Dataquest`s Worldwide Research Operations Group, has compiled a study of DRAM supply and demand dynamics that indicates a buyer`s market for memory through 1997 and into 1998, when 64-Mbit demand begins to perk up (Fig. 1). Bohn estimated that in 2Q96, supply outstripped demand by a whopping 15 percent, but that this oversupply would decline slightly in 3Q - a prediction borne out by a stabilization of DRAM prices in September. A year-end surge in PC demand would increase the drive toward short-term equilibrium.

Marginal progress

One of the most interesting aspects of DRAM production, and one that explains the recent surge in fab-building, is the profit margin on finished devices. Again, 1995 was a remarkable year - over $20 billion in profit was derived from DRAM sales that year, estimates Bohn, with margins running at a historically high level of more than 60 percent for some companies. Since 1974, typical margins have ranged between 10 and 40 percent; the sharp increase in 1994 (when margins were about 50 percent) and 1995 was due primarily to underinvestment in new fabs in the early part of the decade, when Japanese chipmakers were coping with the collapse of the "bubble economy."

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Figure 1. The geographical distribution of DRAM market leaders has shifted substantially in recent years; in 1995, only half of the top ten suppliers were Japanese, and seven of the top 12 came from outside Japan. The three large South Korean suppliers have taken market share with a vengeance, with Samsung having a 15 percent stake. Mosel Vitelic is the first Taiwanese firm to venture into the treacherous waters of DRAM production.

The other side of this equation was unusually stable DRAM pricing - 4-Mbit parts remained at the 1200 yen level from late 1992 to early 1996, defying decades of traditional price drops. Indeed, end-user pricing for memory actually climbed at some points during the period as a result of demand and currency fluctuations.

Analysts and industry executives have suggested that this situation created a distorted picture of the memory market, and may have attracted starry-eyed new entrants to the volatile business. One area where new DRAM makers are found in large numbers is Taiwan, which in 1995 was represented only by Mosel Vitelic (Fig. 2). Bohn notes that at least four or five companies in Taiwan (including the Texas Instruments-Acer joint venture, Vanguard, Nan Ya, Powerchip, United Microelectronics, and a Siemens-Mosel joint effort) are entering the DRAM market with varying schedules. The arrival of all this capacity is a "wild card," that could result in continued oversupply, though reports indicate that rampup schedules are being revised in light of current market conditions. It remains to be seen whether Taiwan`s chipmakers will follow the hell-for-leather approach of Samsung, Hyundai, and LG Semicon as they try to enter the memory arena.

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Figure 2. The DRAM supply shortage that kept prices high in 1994 and 1995 shifted to a glut situation in 1996. Dataquest predicts that oversupply will continue into the second half of 1997; viability for 1998 is limited, but a relatively balanced market seems likely.

Also moving assertively into memory production is German manufacturer Siemens; IBM may also be poised to become a bigger player. The South Korean producers are all spending heavily on new fabs, including Samsung and Hyundai`s US installations. Japanese firms are continuing to maintain and expand their production lines, although in recent months there have been a number of postponements and stretchouts.

64`s advent?

Indeed, the fab delays in the first three quarters of 1996 are not only a response to the glut of 4- and 16-Mbit devices, but also an indication of a broader technological shift. Some manufacturers have cut 16-Mbit production, and technology leaders like Samsung and NEC have begun a somewhat sooner-than-anticipated shift to 64-Mbit manufacturing, in search of higher margins and less competition.

While the latter move certainly makes sense in the short term, it is not without risk. If too many producers ramp up too quickly, the per-bit price of 64-Mbit parts may drop unusually quickly, depriving the industry as a whole of the high margins traditionally earned early in a DRAM production cycle. The big question is how producers will utilize their 0.35- and 0.30-micron fab lines - for economical shrink versions of the 16-Mbit, or for early rampup of 64-Mbit parts. By mid 1997, there will be 25 fabs capable of making 64-Mbit parts worldwide.

Bohn, however, feels that there will still be "well under" 100 million 64-Mbit parts fabbed in 1997, which would keep the overall generational shift in line with earlier estimates. "If there is a really strong ramp, which we don`t expect," he said, "it would knock down the price per bit early in the cycle, which could be bad news because so much has been spent on development. Most of the money is made in the first two years of the new cycle, so the key years are 1997 and 1998."

Typically, said Bohn, the first year of a DRAM cycle starts when production reaches 100 million units or so, with this amount often tripling in the next year. He estimates production of about 50 million units in 1997, followed by more than 200 million in 1998. By comparison, 4-Mbit production peaked in 1995 at about 1.5 billion units, and is expected to decline from this year`s 1.2 billion units, to less than 400 million in 1998. Meanwhile, 16-Mbit output is forecast at just under 1 billion units this year and in excess of 1.5 billion in 1998.

NEC, the leading Japanese DRAM producer and number two worldwide, intends to make 500,000, 64-Mbit devices/month by the end of the 1996 calendar year, and hit the million/month level by the end of the Japanese fiscal year in March. Much of this work will be done at the firm`s NEC Hiroshima Co. facility, where 16-Mbit production began in May on the second floor of the A2 building. That line, which utilizes i-line lithography, is being converted for processing of 64-Mbit and shrink versions of 16-Mbit devices.

A separate line on the building`s first floor, which has deep UV and i-line litho tools, will become operational late this year. Both lines have 10,000 wafer/month capacity.

Japanese press reports said NEC will cut 16-Mbit output for the second time this year, to between 12 million and 13 million chips/month by year-end, and Fujitsu is also reportedly slashing production.

Meanwhile, Mitsubishi plans to produce 500,000, 64-Mbit units/month at its Saijo Plant on Shikoku Island, while Toshiba will raise production to 100,000 units/month this October at its Yokkaichi Plant. Toshiba also said it has agreed to license 64-Mbit manufacturing technology to Winbond of Taiwan in exchange for supplies of the devices, extending existing pacts for 16-Mbit DRAMs and 1-Mbit SRAMs. Winbond may begin production of 64-Mbit parts by the end of 1998, but a decision has not yet been reached.

What effect PCs, dumping?

Of course, one of the fundamental drivers for memory is the personal computer market, which consumes two-thirds or more of all DRAMs. Dataquest is still quite positive on prospects for the world PC market, predicting that annual growth will remain well above 10 percent through the end of the decade with unit sales hitting the 100 million range in 1998. Most machines are now shipping with 16 MB of RAM, and 32 MB systems are commonplace in light of the lower prices.

However, there are some warning signs in the PC sector. Dan Rose of the Rose Associates market research firm in Los Altos, CA, suggests that the US home PC market is near saturation; in conjunction with less-than-robust international sales, he says, "a secular softening of PC demand may occur throughout the remainder of the decade, reducing sales expectations to approximately half of earlier 25 percent/year growth estimates."

A major downturn in PC sales would have a very significant effect on the DRAM industry; observers will be closely watching this Christmas`s buying season for clues about the health of the US home market.

One final wild card cited by Bohn is the accusation of DRAM dumping filed by US memory maker Micron against Hyundai and LG Semicon of South Korea. "Micron is one of the world`s most competitive 4-Mbit manufacturers, and they can make them for under $2.50," said Bohn. "When the spot price fell below $2.00, their alarms went off." In September, Micron asked that the federal probe of Hyundai and LG be expanded from the original May 1995, to April 1996, period to include the period between May and August 1996. Although the results of such investigations often arrive after market forces have evolved, a determination that dumping occurred could create problems for the Korean vendors and opportunities for other companies.