If more than 25 percent of Elpida’s manufacturing capacity is taken offline, the global average selling price (ASP) for all DRAM shipments is projected to rise to $1.21 by the end of 2012, up 15.5 percent from $1.05 at the end of the first half of the year, as presented in the figure below. Without such a reduction in capacity, pricing would rise to $1.13 at the end of the year, up just 8.5 percent from the price at the end of the first half.
“A meaningful reduction in Elpida’s manufacturing will cause the DRAM market to go into a state of undersupply, causing prices to increase,” said Mike Howard, senior principal analyst for DRAM & memory at IHS. “Shipments likely will decrease because of the Elpida bankruptcy, even though the resulting increase in revenue—driven by higher prices—will cause the market to perform better than expected in 2012. The ultimate fate of Elpida’s manufacturing assets, which remains to be decided, will be the major factor impacting pricing and revenue growth in 2012. But one thing is certain: Elpida’s bankruptcy means the remaining DRAM players can look forward to a much rosier 2012 than they did just one week ago.”
IHS conservatively estimates that 2012 DRAM revenue will exceed $30 billion, compared to the previous forecast of $24 billion.
In a preview of what is likely to happen in contract prices later this year, the spot memory market reacted drastically to the news of Elpida’s bankruptcy. Spot prices for PC DRAM jumped by more than 15 percent in just one day.
Elpida declares bankruptcy
Facing more than $1 billion in imminent debt payments, Elpida filed for bankruptcy protection on February 27.
While there certainly had been concern over the financial health of the ailing Japanese DRAM maker, the suddenness of the filing has caused heads to spin in the industry.
Elpida long has been one of the leading forces in the memory market and is the last remaining DRAM maker headquartered in Japan. The company’s possible demise is a remarkable development for the industry.
However, Elpida’s filing for bankruptcy does not necessarily mean the end of manufacturing for the company.
Production has not ceased at its manufacturing facilities, and its engineers, salespeople, marketers and corporate strategists are hard at work on finding a path forward.
Nevertheless, the company likely will look very different on the other side of bankruptcy. Not only will the company have to deal with its massive debt load or more than $5 billion, it also must deal with the challenges of manufacturing in the high-cost regions of Japan.
At an extreme, the bankruptcy could mean that Elpida’s days as a DRAM manufacturer are completely over.
“If all of Elpida’s fabs—such as its Hiroshima facility—cease making memory permanently, then the chronicallyoversaturated DRAM industry may finally reach a state of supply/demand equilibrium,” Howard noted. “While it’s unlikely that all of Elpida’s production will disappear, this development could mark a new era for the DRAM market—one marked by stronger pricing power for suppliers.”
Many existing Elpida customers during the coming months will seek alternative suppliers to secure DRAM products. DRAM is a critical component for innumerable electronic devices—most prominently notebook and desktop PCs—and a shortage of supplies can prevent devices from shipping to consumers. Because of this, DRAM buyers will look to Samsung, Hynix, Micron and Nanya to provide these critical components.
While every DRAM company likely will gain market share as customers seek reliable alternative suppliers, Micron and Nanya are expected to realize the greatest gains.
Hynix and Samsung are currently the two largest DRAM suppliers. Because of this, customers likely already use them as sources. And as customers seek additional suppliers, they will be more apt to look to Micron and Nanya.
Inotera, which supplies both Micron and Nanya, and is currently operating at less than full capacity, will see its production return to full capacity as it serves Micron and Nanya’s incremental increase in demand.