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Samsung shaken by DRAM doldrums

Posted: 11 Feb 2009 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM downturn? Samsung shipment growth? doldrums DRAM?

How bad is the downturn in the DRAM industry?

So bad that even the dominant market leader, Samsung Electronics Co. Ltd is no longer immune, with the company in Q4 08 completely missing its shipment growth guidance, suffering a decline in market share and losing money for the first time in a year.

Global DRAM unit shipments achieved nearly zero growth in Q4 compared with Q3. Average selling prices (ASPs) declined by 38 percent, far above the even historical annual average of 30 percent. With shipments flat and prices dropping, global market revenue amounted to $4.2 billion in Q4, falling well short of iSuppli's forecast of $5.8 billion.

For the entire year of 2008, revenue was $23.6 billion, coming in below iSuppli's preliminary estimate of $25 billion.

The DRAM market has been mired in a downturn for nearly six months after a short recovery in Q2, with iSuppli in September 2008 downgrading its estimate of short-term conditions for suppliers to "Negative," from "Neutral" before, due to a severe oversupply, weak demand and sharp price declines.

Sequential declines
The downturn is impacting the global DRAM business in an increasingly broad fashion. Five of the Top 10 suppliers suffered sequential declines in DRAM revenue in the third quarter, including Samsung. In Q4, all of the Top 10 saw their revenue decline compared to the previous quarter.

"With its dominant market share, huge capital investments and industry-leading costs, Samsung generally has been able to outperform the overall DRAM industryin both good times and bad," said Nam Hyung Kim, chief analyst for iSuppli. "No wonder the company still holds the best DRAM profit margin in the industry. However, amid the recent global economic turmoil, Samsung now is no longer immune and its losses are expected to continue this quarter."

Shining suppliers
At the same time, No. 2 DRAM supplier Hynix increased its share to 20.8 percent in Q4, up from 19.2 percent in the third quarter. Although Hynix suffered a 32.7 percent decline in revenue in Q4, it managed to handily outperform the overall industry decline of 37.9 percent.

No. 4 DRAM supplier Micron was the star performer in Q4, with its revenue declining by only 16.4 percentthe smallest decrease among the Top 10 DRAM suppliers. The U.S. company also posted the biggest market share increase among significant DRAM makers in Q4, with its portion of industry revenue rising to 13.8 percent, up from 10.2 percent in Q3.

"Although Micron's production output growth was about 20 percent, the company's shipment growth hit 36 percent sequentially, resulting in its relatively strong performance," Kim said. "More importantly, Micron has reduced its market share gap with Japan's Elpida, dwindling to 1.7 percentage points in Q4, down from 5.5 percentage points in the Q3."

No. 3 supplier Elpida accounted for 15.5 percent of DRAM revenue market share in Q4, down slightly from the Q3. However, Elpida's annual 2008 market share of 15.3 percent compared to 12.2 percent for the full year 2007, the biggest increase among the Top 10 suppliers on an annual basis.

Taiwan players
As a group, Taiwan's DRAM suppliers posted the industry's worst performance, with the Top 3 suppliersNanya, ProMos and PowerChipseeing their revenue decline by 50.2 percent, 57.2 percent and 74.5 percent, respectively. The nation's suppliers all cut wafer capacity to contain their cash losses. Taiwan's suppliers have requested a government bailout, and potential action is pending.

Germany's Qimonda, which filed for insolvency in January, saw its Q4 revenue fall by 39.9 percent compared to Q3. The company now is seeking investors during its insolvency phase.

Dwindling demand
DRAM suppliers have been selling their products at prices below their cash costs since Q4 07. This situation did not improve in Q4 as dwindling demand further exacerbated the ASP decline. The industry's operating profit margin fell to negative 65 percent, and iSuppli believes the total operating losses reached $2.6 billion in the Q4 and $7 billion in 2008.

The industry's Q4 operating loss of $2.6 billion exceeded the $2.1 billion operating loss for the full-year of 2007.

With disappointing Q4 sales and radical supply cuts among manufacturers, iSuppli has reduced its 2009 DRAM revenue forecast down to $20 billion, down 15 percent from 2008. Megabyte shipment growth for the year will amount to only 22 percent, significantly down from 66 percent in 2007. The DRAM per-megabyte ASP will drop by 31 percent for the year.





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