DRAM Price Erosion to Slow Down Next Year

Slower advancements in semiconductor manufacturing technology this year is expected to result in a deceleration in price reductions for dynamic random access memory (DRAM) next year, according to latest research from IHS.

Following a drop of 14.2 percent in the first quarter this year, the global average decline in pricing for DRAM slowed to 12 percent in the second quarter, says IHS. The rate of decrease is expected to decline to 9 percent this quarter, and then dwindle to just 4 percent in the next. The market research firm expects the rate of decrease to further slow to just 1 percent in the first quarter next year, and then remain in the 3 to 4 percent range for the rest of the year.

The slowdown in price reductions parallels a deceleration in the rate of migration to more advanced lithography used for manufacturing DRAM, IHS notes. To a large degree, DRAM pricing trends are driven by the progression of manufacturing technology to smaller geometiores.

Average lithography geometry for global DRAM manufacturing shrunk by 5.6 percent in the first quarter. However, that rate of shrinkage will decrease to 5.2 percent in the second quarter, to 4.8 percent in the third quarter and to 3.7 percent in the fourth quarter. After declining to 2.9 percent in the first quarter of 2012, lithography will shrink in a range of 3.8 percent to 4 percent for the remainder of the year, according to IHS.

“In the wake of forcefully pursuing lithography reductions in late 2010 and early 2011, the DRAM industry is expected to employ a less aggressive approach to lithography migration throughout the rest of the year,” says Dee Nguyen, memory analyst at IHS, in a statement. “DRAM capital expenditures are expected decline by 30 percent in 2011 compared to 2010. As a result, the rate of DRAM cost reductions also will slow during the remainder of 2011 and 2012. However, IHS expects that DRAM cost reductions will speed up again in 2013 as lithography shrinks return, due to increased capital spending. Spending will increase by 23 percent in 2012, which may spur steeper price reductions in 2013.”

According to IHS, the DRAM industry is undergoing several transitions, including the strategic shift away from commodity DRAM among many suppliers, new manufacturing and foundry alliances, as well as by the continued migration to 40nm technology and beyond. All these factors will have an impact on supply-and-demand dynamics, which will affect profitability and supplier earnings, IHS believes.

As the transition to 4x-nanometer fully completes next year, cost declines will level off even more, IHS estimates. Cost reductions relative to lithography migration will reach 6.5 percent per quarter during the remainder of 2011, and then narrow to 3.3 percent in 2012.

IHS