Market Watch

DRAM at Risk of Shortage in Second Half


Tooling and yield challenges could clip overall growth
The high-ying DRAM market might bump into some turbulence during the second half of the year, with supplies possibly falling short of demand due to limited manufacturing equipment availability and challenges in process migrations, according to iSuppli Corp.

A commodity profoundly susceptible to the variable dynamics of supply and demand, DRAM is expected to ship 15.9 billion 1Gbit-equivalent units in 2010, up 48.6 percent from 10.7 billion units last year. Most of the year’s growth is forecasted to occur in the second half of the year, with each of the final two quarters of 2010 expected to post sequential bit growth of approximately 11 percent. In comparison, bit growth in the first two quarters of 2010 topped out at far below the 10 percent mark.

Such high levels of growth, concentrated in a six-month period, will strain the production capabilities of DRAM suppliers.

Tooling and Yield Issues could Prove Challenging
Two issues potentially might negatively impact second-half DRAM availability and push what is left of the year into undersupply. Bottlenecks in the availability of tooling equipment on the one hand, and challenges relating to immersion yield on the other, could affect supplies.

In the first instance, overall production remains a problem given the inability of ASML Holding N.V., the world’s largest supplier of semiconductor lithography tools, to supply enough equipment. While ASML appears capable this year of delivering an additional 33 immersion scanners, it will not be enough to resolve the bottleneck, iSuppli believes.

A second—and potentially more serious—difficulty that could impact DRAM supply relates to yield challenges beyond 50 nanometer (nm), the point at which immersion tooling becomes necessary. To be sure, the industry’s biggest players—such as Korean giant Samsung Electronics Co. Ltd., Hynix Semiconductor Inc. from Taiwan, and U.S.-based Micron Technology Inc.—have successfully made the shift to smaller lithographies in light of their enormous resources and experience producing NAND flash memory, which is ahead of DRAM lithographically. However, for resource-constrained companies or for those currently negotiating the transition, difficulties accompanying such a move might reduce their total output, negatively impacting the industry’s overall bit growth in the process.

One example of a company in the midst of transitioning is Japanese DRAM supplier Elpida Memory Inc. For the second quarter, Elpida was expected to move from 6xnm processes to 45nm—a considerable lithographic jump that presents confounding yield problems. Should Elpida, along with its technology partner Rexchip Electronics Corp., run into any unforeseen yield issues, bit production from both companies could be significantly disrupted, iSuppli believes.

In turn, such dislocation could have far-reaching repercussions, impacting global bit growth for the rest of the year. As a result, overall bit growth projected for 2010 could come in from 2 to 4 percentage points lower than expected, slashing the projected annualized growth rate from 49 percent to as low as 45 percent.

In the end, the loss in bit growth might mean an upward movement in prices. And in such a scenario, the real winners would be the companies that already have leapfrogged the immersion hurdle: industry powerhouses like Samsung and Micron. With their supply well secured, any price increases will only serve to further bolster their already stellar earnings.

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