Due to the uncertainties in the global economic situation, the DRAM market is expected to continue to decline by 4% in 2009. The DRAM industry has contracted for seven consecutive quarters, and the situation is precarious. Manufacturers are laying off large numbers of employees, reducing production and facing bankruptcy risks. Since 2007, the eight largest DRAM suppliers have lost nearly US $ 8 billion, and their combined operating losses are expected to reach US $ 11 billion by the end of next year.
DRAM-This was the most lucrative semiconductor field two years ago. Why did it fall into this situation?
Scale game
After a massive loss in 2001, the industry did not realize profits until 2006. Subsequently, DRAM manufacturers tripled their capital expenditures. In 2007, expenditures increased from US $ 7 billion in 2001 to US $ 21.1 billion. Since 2000, the capital expenditure of the DRAM industry has exceeded US $ 100 billion, almost double the current market value of the eight largest suppliers.
The three Taiwanese DRAM suppliers have total capital expenditures of more than US $ 20 billion since 2000, which shows how serious overinvestment was at the time. The overall market value of these three manufacturers is now about $ 1.4 billion. In addition, most of the capital expenditure required by many suppliers comes from debt financing. The freezing of the credit market has hurt a group of suppliers who are in desperate need of additional funds for investment, this time entirely for the purpose of saving lives.
However, why does the industry spend so much money unscrupulously?
Scale is the most important premise for enterprises to create profits. This has led to the main cause of the industry's gaming situation in the past two years.
Although capital expenditures have been reduced by 48% this year, the DRAM industry's digit growth rate has not declined, highlighting how huge the previous investment scale was. This indicates that manufacturers must continue to cut capital expenditures in the near future.
No winner
In this process, no DRAM supplier can be a winner. Samsung Electronics is the leading manufacturer in this industry. Its investment in DRAM manufacturing since 2000 has been $ 27 billion, and its market share has not changed this year, about 30%. Due to oversupply and the global economic downturn, this South Korean memory maker's DRAM business is expected to suffer losses this quarter.
DRAM suppliers Powerchip, Protech, South Asia and Qimonda are currently seeking government assistance. According to local newspapers in South Korea, Hynix Semiconductor is close to finalizing an additional support payment of US $ 600 million, which comes from its creditor, Korea Industrial Bank (KDB). The double blows of over-investment and the global credit crisis have clearly plunged the DRAM industry, and DRAM prices are still below the variable costs of suppliers.
Despite the bleak economic situation and unclear demand prospects, iSuppli is cautiously predicting that the DRAM market will turn around in the second half of 2009 due to the rapid reduction of production capacity by suppliers. In the near future, iSuppli believes that the price of DRAM will stabilize near the current level. No matter whether the supplier can obtain rescue from other channels, the loss of the supplier will be reduced. But until then, suppliers will still struggle to survive.
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