After more than a decade of savage pricing pressures that devastated margins and profitability at suppliers combined with wild demand-supply swings, the semiconductor DRAM market appears to be finally settling into a more “normal” trading pattern, according to an executive at Micron Technology Inc.
The chip vendor, one of about three top suppliers that led and survived the DRAM market’s latest round of supplier consolidation and tight demand-supply management, believes the fundamentals of the memory segment have changed so dramatically in the last several years after the exit of many vendors that its future performance would be not only better but also more predictable.
Recent research reports indicate the company could be right. Micron’s ranking in the global semiconductor market is forecast to improve sharply this year with sales rocketing higher on acquisitions and then stabilize in coming years. Research firm IHS Inc. projects Micron will this year become the No. 4 global chip maker by revenue, leapfrogging from No. 10 in 2012. Demand for memory products, including DRAM and NAND flash, is surging at a double-digit clip and the entire sector will help improve sales in the entire semiconductor market in 2013, according to Dale Ford,” head of electronics and semiconductor research at IHS.
“Global semiconductor sales in 2013 will amount to $317.9 billion, up 4.9 percent from $302.9 billion in 2012,” Ford said in a report issued on Tuesday. ““Memory chips are coming to the rescue of the semiconductor business in 2013. Solid pricing and expanding demand for DRAM and NAND in smartphones and tablets have caused revenue for these memory devices to surge. Without these two high-performing product segments, the semiconductor industry would attain zero growth this year.”
Micron is cashing in on the rising demand for DRAM and other memory products. It is also benefitting from recent acquisitions and improvements in pricing and demand and supply conditions. Analysts on average forecast the company will post revenue of $15.1 billion in the fiscal year ending August 29, 2014, up 66 percent, from $9.1 billion in fiscal 2013. It reported net income of $1.2 billion in the latest fiscal year compared with a net loss of $1.03 billion in fiscal 2012.
Mergers and acquisition actions coupled with production capacity reduction measures and other strategic initiatives conducted by leading DRAM vendors in the last years have helped the segment post dramatic improvements and reverse a nasty trend of worsening margins, average selling price erosions and rising losses. Micron, which many analysts five years ago thought could crumble under negative market conditions, appears to have benefitted from the rounds of market consolidation and supply reduction efforts. DRAM manufacturers are tightening supply and no new capacity is expected in the near future, according to according to Kip Bedard, vice president of investor relations at Boise, Idaho-based Micron.
“No new wafers are coming in the DRAM space,” Bedard said. “There is no idle capacity sitting anywhere and Micron itself over the next six months is going through our transition. At a fab in Singapore we’re still removing 3 percent of the wafer supply in DRAM, so it’s a very healthy supply dynamic for DRAM.”