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"Vicious circle of oversupply" hits DRAM market profits

You'd think that with all the smartphones and tablets people are buying these days, makers of dynamic random-access memory (DRAM) would be enjoying a fair amount of success right now.

Not so, says GBI Research, which on Monday released a report describing a "vicious circle of oversupply" in the DRAM market due in part to global economic uncertainty but also resulting from the accelerating development of apps for mobile devices that don't need as much memory to function as older software.

The report notes that "[p]rices have fallen so much in fact that manufacturers have been forced to sell these memory devices at below production cost, preventing profit generation." Falling prices have led DRAM makers to rev their fabs up to full capacity "in an attempt to claw back expenses," but that's only made matters worse, according to GBI Research.

The research firm laid out some depressing numbers for DRAM manufacturers. Revenues for the global DRAM hit a peak in 2010 with sales worth $37.3 billion (£23.77 billion), but that figure fell by 21 per cent to $29.5 billion (£18.79 billion) in 2011 and sales this year are projected to be flat or even slip further.

That wouldn't be so bad if sales volumes weren't exploding, GBI notes. Unit sales of DRAM in 2012 could be nearly double the 16.39 billion units sold in 2010 while generating a fifth less revenue, a drastic collapse in margins for manufacturers.

The reported issues in the DRAM market are similar to an oversupply problem in the NAND Flash market reported earlier this month. NAND Flash is used in solid state drives (SSDs) for smartphones, tablets, and newer, sleeker laptops like ultrabooks.

In early July, Samsung and Toshiba were reportedly dealing with softer demand for their NAND Flash products than anticipated, supposedly because ultrabooks haven't been selling as briskly as anticipated when Intel launched its new thin-and-light laptop category about a year ago.

Interestingly, the two companies were reportedly considering putting the brakes on their most advanced NAND flash process technologies until demand for SSDs increased, and the subsequent profitability of making them — the opposite of what GBI reports is happening in the DRAM market.

Last year, DRAM and flash memory roughly split the global memory integrated circuit (IC) market, each with about 47 per cent of the total market, GBI reported.

Image: Digital Trends