Samsung Solidifies DRAM Domination

Samsung Electronics Co. Ltd in the third quarter became the only Top 5 DRAM supplier to achieve revenue growth, solidifying its domination of the market, according to the market research firm iSuppli Corp.

The South Korean electronics giant sold $4.4 billion worth of DRAM in the third quarter, up 14.3 percent from $3.8 billion in the second quarter. With the next four largest suppliers all suffering sequential declines in revenue, the company’s share of the market in the third quarter surged to 40.7 percent, up from 35.4 percent in the previous quarter.

The company’s double-digit growth was all the more remarkable given that overall DRAM market revenue in the third quarter actually declined slightly to $10.72 billion, down 0.6 percent from $10.78 billion.

“Samsung has been vocal about its desire to expand its DRAM market share to as high as 50 percent,” said Mike Howard, senior analyst for iSuppli. “The third-quarter results show Samsung has put its money where its mouth is. By investing heavily in expanding production and advancing its manufacturing technology, the company has been able to cut pricing and to eat into the market share of its competitors.”

Surviving Samsung
Howard expects Samsung to continue to gain share in 2011 as it presses its market-share campaign.

“The only limitations on Samsung’s growth will be how much share its largest PC OEM customers will allow it to take, how long the company can continue to cut prices and how much it can increase its dominance before government regulators raise anti-competitive concerns,” Howard said.

The remaining players in the DRAM industry face a very challenging 2011. They not only need to advance their manufacturing technology as aggressively as Samsung—an expensive and technically difficult task—they must also keep wafer output at current levels at the very least.

As prices continue their descent, some manufacturers could find their production costs rising above their average selling prices. The likely reaction to this dynamic would be a reduction of output and a significant surrender of market share, as was witnessed in 2008.

“The year 2011 is shaping up to be a time when DRAM companies are going to have to move incredibly fast just to keep up with Samsung,” Howard said. “Those companies that are unable to advance their manufacturing processes at least as quickly as Samsung will see their market shares continue to shrink. It looks like the DRAM industry could very well be heading for consolidation, with some competitors being acquired or getting forced from the market.”

Micron struggles
At the opposite end of the performance spectrum was Micron Technology Inc., which posted the worst performance among the Top 5 DRAM suppliers. The U.S.-based company posted revenue of $1.1 billion, down 21.4 percent from $1.4 billion in the second quarter. While the company maintained the No. 4 market position, its share fell to 10.5 percent, down from 13.3 percent in the second quarter.

“Micron’s market share has shrunk dramatically over the past two quarters, primarily due to production challenges at its Inotera facility,” Howard said. “However, Micron will not lose further market share in 2011 and might actually expand its position slightly. Micron’s DRAM wafer production will grow in 2011 due to the significant uptick in utilization anticipated at Inotera. Furthermore, Micron’s margins will benefit from its effort to transition to more advanced manufacturing processes—an effort that is as aggressive as Samsung’s.”

Hynix weathers the storm
After Samsung, the next best performance among the Top 5 DRAM suppliers was posted by fellow South Korean semiconductor supplier Hynix Semiconductor Inc. Hynix saw its revenue dip by just 2.9 percent to $2.25 billion, down from $2.31 billion in the second quarter.

“Hynix’s decline in revenue was largely due to its very modest growth in bit production and its falling average selling prices,” Howard said.

iSuppli