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Elpida bankruptcy gives DRAM market a taste of hope

Posted: 07 Mar 2012 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM market? bankruptcy? shipment?

Not to be viewed as a necessary sacrifice, the situation with Elpida may be unintentionally considered as one. Its recent bankruptcy filing is projected to benefit the remaining DRAM companies that for the longest time have been desperate for a pick-me-up. The expected reduction in supply and the resulting pricing boost and revenues in 2H12 will certainly give the market the breather it deserves, according to IHS Inc.

If more than 25 percent of Elpida's manufacturing capacity is taken offline, the global average selling price (ASP) for all DRAM shipments is projected to rise to $1.21 by the end of the year, up 15.5 percent from $1.05 at the end of 1H12. Without such a reduction in capacity, pricing would rise to $1.13 at the end of the year, up just 8.5 percent from the price at the end of the first half.

global DRAM ASP

The global ASP for all DRAM shipments is projected to rise to $1.21 by the end of the year.

"A meaningful reduction in Elpida's manufacturing will cause the DRAM market to go into a state of undersupply, causing prices to increase," indicated Mike Howard, senior principal analyst for DRAM and memory at IHS. "Shipments likely will decrease because of the Elpida bankruptcy, even though the resulting increase in revenue!driven by higher prices!will cause the market to perform better than expected in 2012. The ultimate fate of Elpida's manufacturing assets, which remains to be decided, will be the major factor impacting pricing and revenue growth in 2012. But one thing is certain: Elpida's bankruptcy means the remaining DRAM players can look forward to a much rosier 2012 than they did just one week ago."

IHS conservatively estimates that 2012 DRAM revenue will exceed $30 billion, compared to the previous forecast of $24 billion. In a preview of what is likely to happen in contract prices later this year, the spot memory market reacted drastically to the news of Elpida's bankruptcy. Spot price for PC DRAM jumped by more than 15 percent in just one day, noted IHS.

Elpida bailout denied, files bankruptcy
The DRAM maker has failed to win a second government bailout in light of more than $1 billion in imminent debt payments. The embattled chip maker has been facing fluctuating market prices, supply shortages due to the flooding in Thailand and a stronger yen. Elpida filed for bankruptcy protection on February 27.

Elpida goes bankrupt
Facing more than $1 billion in imminent debt payments, Elpida filed for bankruptcy protection on February 27.

While there certainly had been concern over the financial health of the ailing Japanese DRAM maker, the suddenness of the filing has caused heads to spin in the industry. Elpida long has been one of the leading forces in the memory market and is the last remaining DRAM maker headquartered in Japan. The company's possible demise is a remarkable development for the industry.

However, Elpida's filing for bankruptcy does not necessarily mean the end of manufacturing for the company. Production has not ceased at its manufacturing facilities, and its engineers, salespeople, marketers and corporate strategists are hard at work on finding a path forward.

Nevertheless, the company likely will look very different on the other side of bankruptcy. Not only will the company have to deal with its massive debt load or more than $5 billion, it also must deal with the challenges of manufacturing in the high-cost regions of Japan.

At an extreme, the bankruptcy could mean that Elpida's days as a DRAM manufacturer are completely over. "If all of Elpida's fabs!such as its Hiroshima facility!cease making memory permanently, then the chronically oversaturated DRAM industry may finally reach a state of supply/demand equilibrium," Howard noted. "While it's unlikely that all of Elpida's production will disappear, this development could mark a new era for the DRAM market!one marked by stronger pricing power for suppliers."

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