DRAM Industry enters positive circle and profit in next 3 years is expected

Consecutive 3 year lost has been terminated in 4Q09 and expected profit in next 3 years

Given the cyclical pattern that DRAM industry been through in past years, we can identify that individual completed industrial cycle is 3 years. According to Figure 1 for OPM analysis. DRAM vendors experienced three continuous lost from 2001-2003 and consecutive profit from 2004 to 2006, followed by another decline from 2007 to 2009. In 2010, DRAM vendors start to turn to profit and enter another profit cycle. Given the recovering global economy, corporate replacement and consumer stimulate by Windows 7, limited DRAM CAPEX and technology migration bottleneck, we DRAMeXchange expect DRAM industry likely enter another positive cycle with anticipated profit in next 3 years.

Estimated 16% YoY PC shipment growth and expected strong momentum in next 2 years triggered by recovering economy and PC replacement effect

Global economy has reovered since 2H09 that IMF has upsided 2010 WW GDP grwoth from 3.1% to 3.9% while China GDP growth is exepcted to be 9.5% from 8.7% in 2009. China is proved to be the strong economic growth momentum. According to the consumer confidence index, Europe and Japan have walked out the bottom. Govenments have aggressively lower down the unemployment rate via strong econonic policy that we expect it will bring postive impact on PC shipment growth in coming years.

Windows Vista, launched in 2007 by Microsoft, did not trigger any replacement effect accordingly. However, we DRAMeXchange expect the new OS windows 7 will play the important parts in consumer and corporate PC replacement that PC shipment YoY growth is estimated at 12%-17% in next 3 years.

Smartphone will boost the demand from mobile DRAM

According to DRAMeXchange, 2010 smartphone shipment YoY growth rate is expected to be 28.6% that we believe strong smartphone momentum will boost the demand of mobile DRAM. 2009 mainstream mobile DRAM density for smartphone is 128MB while 2010 mainstream mobile DRAM density for smartphone will be up to 256MB. We DRAMeXchange expect 512 MB density will be designed for next generation smartphone. That is, given the strong shipment and content growth momentum, mobile DRAM will turn to another driver of DRAM demand. According to our check, Apple’s iPad shipment is estimated at 7.5M units in 2010 and its 512MB mobile DRAM spectrum will raise mobile DRAM demand. This situation will enable DRAM vendors such as Samsung, Hynix, Elpida to increase mobile DRAM output, which is expected to cannibalize the output for commodity DRAM capacity. 

WW DRAM capacity will decline 20% due to 8” inch capacity phase out and limited capacity expansion is expected in next 3 years.

Impact by global financial crisis. DRAM vendors recorded huge lost due to the frozen demand in 2H08 and sharply cut the capacity as well as phase out 8”inch capacty. Despite of recovering economy from 1Q10 and capacity recovery, WW total DRAM capacity is still 20% lower than the capacity at peak in 2H08 given the assumption of full utilization rate of 12”inch capacity. It usually took two to three years to have all new facility settled down, that is, we expect new capacity will be limited in next two years. Samsung may expand 40K output while Nanya will likely increase 20K output in the future.

CAPEX for next years is expected to grow with stable path

Impact by the global financial crisis in 4Q08, DRAM vendors are forced to cut the CAPEX due to the huge lost and weak financial structure. 2009 overal DRAM CAPEX is down to the level of US$4.3B, which is lower than the level of US$5.3B in 2002. 2010 CAPEX is estimated up 93% to US$8.36B. However, this level is still quite low compared to the historical figures. CAPEX will be expected to stably grow along with the profit status that DRAM vendors enter.

Storage of immersion scanners barrier the technology migration progress

Immersion scanners are required for 50nm and below technology migration. Besides DRAM industry, other semiconductor vendors such as TSMC and UMC will also need immersion scanners on technology migration. ASML, the supplier of immersion scanner, has occupied above 90% market share accordingly. With the full utilization status, the time table for delivery becomes uncertain and this situation may delay the technology migration for DRAM vendors.

As for technology migration, Samsung is the only vendor can achieve 4xnm technology product mass production while Hynix and Elpida will do so in 2Q10. However, any possibility of shortage will happen if technology migration progress did not follow the schedule. Moreover, even though 40nm technology is migrated smoothly in 2011, yet the investment will be more demanded since difficulty for technology migration below 40nm will be claimed. We DRAMeXchange expect DRAM supply bit growth rate will be merely 40% given the limited Capacity expansion and difficulty on any technology migration below 40nm.

Expected profit status for DRAM vendors in next 3 years due to strong demand and limited supply.

With the fact of limited capacity expansion, CAPEX, immersion scanner and difficulty of technology migration below 40nm, DRAM supply bit growth will be limited in 2010 to 2012. Also, credit to recovering global economy, strong demand for corporate replacement and smartphone, DRAM demand will show the strong momentum. We DRAMeXchange expect three consecutive profitable years for DRAM vendors are highly anticipated and achievable.