Gartner Says Worldwide DRAM Market is Showing Signs That a Recovery is Under Way
Market Is Forecast to Grow 38 Percent in the Third Quarter of 2003
STAMFORD, CONN., August 19, 2003 — After more than two years of recession and huge losses, the dynamic random-access memory (DRAM) market is on the verge of recovery. This is welcome news for the long-suffering DRAM vendors, but will put pressure on PC vendors and other DRAM users as prices for critical components increase, according to Gartner, Inc. (NYSE: IT and ITB).
Worldwide DRAM revenue is forecast to reach $5.1 billion in the third quarter of 2003, a 37.8 percent increase over the third quarter of 2002. Gartner analysts project DRAM revenue to reach $18.9 billion in 2003, a 21.8 percent increase from 2002.
Gartner analysts said the DRAM industry needs to be aware of the tentative nature of the upturn. "This recovery is going to be based on lack of supply, not increasing demand," said Andrew Norwood, principal analyst for Gartner's semiconductor research group. "We have been here before, and if the DRAM vendors become greedy and increase production, the industry will quickly swing back into oversupply and prices will crash."
"Stabilizing prices and lower inventories alone do not constitute a recovery in the DRAM industry, but these factors combined, and the positive sentiment in the DRAM industry point to the possibility that the DRAM industry recovery has, at long last, begun," Norwood said. "Recent cuts in planned DRAM supply by major vendors have set the industry up for a possible shortage. If this happens, it will mean a return to profits for vendors and strong revenue growth."
A market recovery will be good news for the major DRAM vendors such as Samsung Electronics, Micron Technology, and Infineon Technologies, who have been suffering a prolonged downturn for over two years. A recovery could be critical to the survival of beleaguered South Korean manufacturer Hynix Semiconductor.
Prices in the spot and contract markets began to stabilize in the second quarter of 2003, and have continued to improve. Average selling prices (ASPs) are forecast to increase 20.5 percent in the third quarter of 2003, reaching $5.55, on a 256Mb equivalent basis. Some major DRAM vendors are also reducing anticipated DRAM production in favor of other devices such as NAND flash, which has improved the outlook for the supply and demand situation.
Although this is optimistic news, Gartner analysts said that DRAM remains the most volatile area of the semiconductor industry. "The expected balance between supply and demand could easily swing into oversupply if PC demand is not as strong as expected," said Norwood. "Likewise, if DRAM manufacturers increase production ahead of plan, owing to improving market conditions, the market could be pushed to oversupply earlier than predicted. Any move into oversupply and the related buildup in inventory levels would have a knock-on effect on pricing. If ASPs deteriorated seriously, revenue and profits would quickly evaporate."
Additional information is available in the Gartner Dataquest Alert DRAM Price Rises Trigger Higher Forecasts for 2003 and 2004. This report examines the outlook for worldwide DRAM supply and demand. This report can be purchased on Gartner's Web site.
Additional analysis is being presented during the upcoming 3Q03 Semiconductor Forecast Teleconference on August 22, 2003 at 11:00AM to 12:00PM (EST). Key topics that will be covered range from which devices and applications will determine the worldwide semiconductor forecast to how economic, consumer and broader industry factors are expected to affect semiconductor revenue. For more details, please visit www.gartner.com/teleconferences/asset_47053.jsp.
This forecast is also available to clients of Gartner Dataquest's Semiconductor Forecast Worldwide program. This program provides a comprehensive forecast database, which contains a detailed breakdown of the semiconductor forecast by application and by device. This industry leading electronically delivered publication refreshes semiconductor forecast data for more than 80 applications and 30 device types each quarter. To subscribe to this service, please contact Pia Rieppo at 408-468-8710 or at pia.rieppo@gartner.com.
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