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Expect More Price Declines for DRAM


Semiconductor buyers can expect prices for dynamic random access memory (DRAM) to continue to decline through 2012, but the rate of price decline will likely decelerate.

Prices have declined as DRAM suppliers reduced their manufacturing costs.

The average manufacturing cost of DRAM declined 14.2 percent in the first quarter, and then dropped another 12 percent in the second, according to researcher IHS iSuppli, based in El Segundo, Calif.

As costs have declined, so have prices. For instance, the contract price for a 4 GB DDR3 DRAM module declined 7.46 percent to $31 in the first half of July compared to the end of June, according to DRAMeXchange, a researcher in Taiwan.

In addition, the average price for a 2 GB DDR3 DRAM fell 7.25 percent to $16 in the first half of June. By comparison, the average contract price for a 2 GB DDR3 DRAM in May was $19, when many PC OEMs increased DRAM orders following the earthquake in Japan in March.

IHS iSuppli said that while DRAM cost will continue to fall, the rate of the decline will decelerate to 9 percent in the third quarter and 4 percent in the fourth. The average DRAM cost will decline just 1 percent in the first quarter of 2012 and remain in the 3 to 4 percent range in the three remaining quarters of 2012, according to IHS iSuppli.

The slowdown in cost reductions is related to the deceleration in the rate of migration to more advanced lithography used for manufacturing DRAM. DRAM prices are largely driven by the transition of manufacturing technology to smaller geometries. Migration to smaller process geometries in DRAM manufacturing results in more die per wafer, and allows manufacturers to reduce prices for individual chips.

Average lithography geometry for global DRAM manufacturing shrunk by 5.6 percent in the first quarter. However, that rate of shrinkage will decline to 3.7 percent in the fourth quarter and 2.8 percent in the first quarter of 2012, according to IHS iSuppli.

The DRAM industry will “employ a less aggressive approach to lithography migration throughout the rest of the year,” said Dee Nguyen, memory analyst at IHS iSuppli. Many DRAM makers have transitioned to 40 nm process technology.

Nguyen noted that DRAM capital expenditures are expected to decline by 30 percent in 2011 compared to 2010. That means DRAM suppliers will be investing less to transition DRAM manufacturing to a smaller lithography such as 30 nm. As a result, DRAM manufacturers will be less aggressive with price reductions. However, cost and price declines should speed up again in 2013 as lithography shrinks return, due to increased capital spending, according to Nguyen.

With prices declining, there is a risk that DRAM manufacturers will cut back on production, according to DRAMeXchange.

DRAM manufacturers reduced output during global financial crisis of 2009, when the DDR3 1 GB spot price dipped below the material cost at $0.60. To conserve on cash outflow, DRAM manufacturers decreased their production levels and output declined 32 percent.

When the global economy recovered in 2010, the price of DDR3 1 GB rose to $2.72. DRAM manufacturers started to transition to sub 50 nm process technology, increasing supply. The same scenario is likely if DRAM prices rebound next year or in 2013.

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