DRAM market may return to growth in 2013, but face major risks, says IHS

After two straight years of contraction, the global DRAM market has the opportunity to rebound to double-digit growth in 2013, according to IHS iSuppli. However, major risks - including potential continuing weakness in the PC market - easily could undermine hopes for a sales increase this year, the research firm warned.

DRAM revenues in 2013 is forecast to reach US$30 billion, up 14% from US$26.4 billion last year, IHS said. This year is set to mark the first time since 2010 that global DRAM market revenue will rise.

"The DRAM industry has been clobbered over the past two years by a combination of weak PC sales and an inflated manufacturing base," said Mike Howard, senior principal analyst for DRAM & compute platforms at IHS. "The industry this year is expected to benefit from a return to growth in the PC market, combined with consolidation in suppliers. However, if PC growth falls below expectations and supply remains somewhat inflated, the DRAM market could be headed for a third straight year of decline in 2013."

After declining in 2012 for the first time in 11 years, PC shipments in 2013 are forecast to expand by 8%, IHS indicated. A major factor driving the expected rebound in 2013 will be the new generation of touch-enabled ultrabooks running the new Windows 8 OS.

Nonetheless, there is significant risk to this assumption, IHS noted. The high price of ultrabooks, in particular, has thwarted adoption of the superthin computers, and the public at large has been more enamored of flashier gadgets like tablets and smartphones.

If ultrabooks and Windows 8 do not prove to be the vaunted growth drivers that everyone hopes them to be, the demand profile for DRAM in 2013 will be markedly different, IHS predicts.

A decline this year of 2% in PC shipments, for instance, would mean that the DRAM industry remains oversupplied for the entire year with prices falling a much larger 29% than the expected 16%, IHS said. The net result would be a DRAM revenue decline of 7% to US$24.6 billion - or a third consecutive year of contraction for the industry since 2010.

A number of supply-side factors also are expected to contribute to the rebound of the DRAM market in 2013, according to IHS.

Among these factors are the final integration of Elpida Memory with its buyer, Micron Technology; the continued transition to 2X-nanometer technology of leading players Samsung Electronics and SK Hynix; and the disposition of distressed Taiwanese producers ProMOS Technologies and Powerchip Technology.

For Micron, the 2012 deal in which it purchased bankrupt Elpida will finally close sometime during the second quarter of 2013. This means that starting in the middle of 2013, Elpida and its associated fab Rexchip Electronics will move to Micron's DRAM technology. The transition will pave the way toward reduced output during the second half of the year, which would serve to favorably curb persistent oversupply within the industry and strengthen pricing, stabilizing the market overall.

In the case of Samsung and SK Hynix, both suppliers will finish 2013 with approximately 60% of their wafers at a 2Xnm manufacturing process. The move to a more efficient lithography will result in bit growth of 30-35% - a boon for the players and to the industry at large.

ProMOS and Powerchip, currently reeling from low revenues and high debts, would likely have a positive impact on the industry if they found a buyer. The net drop in DRAM production if their fabs were sold would be minimal, but the cut in production would still help to mitigate oversupply in the first half of the year.

Micron/Elpida integration plays major role in market's fate

However, another risk that could derail DRAM prospects this year relates to what Micron does after it absorbs Elpida and Rexchip. An optimistic assumption calls for Micron to shift existing DRAM capacity from the acquired companies to the more lucrative NAND flash memory. If this happens, DRAM production would be reduced to the benefit of the industry, resulting in greater undersupply and causing correspondingly stronger prices. However, the opposite would be true - with oversupply continuing and weak prices enduring - if Micron elects to not allocate DRAM capacity from Elpida and Rexchip, for whatever reasons it chooses.

Given the notoriously volatile nature of the industry, DRAM revenue prospects remain highly susceptible to both internal and external forces in 2013, IHS believes. A great deal rests on the verdict on ultrabooks, Windows 8 and PCs - and on Micron's capacity allocation decisions for the rest of the industry.