Memory Market: Will History Repeat Itself?

China can’t support three DRAM companies, but it’s likely that one of them will be successful.


While updating the Semico Fab Database and capital investment projections for 2018, China’s investment in memory capacity sparked a lot of discussion at our weekly Semico roundtable. Will China’s investment in memory production capacity be successful, or will it just ruin the party for all memory players? Here are some of the highlights of our discussion. Additional data and insights are included in Semico’s January 2018 IPI Report.

The new capacity that is slated to be added by Chinese-owned companies such as YRST/XMC, Jinhua IC and Rui-Li IC, amounts to more than 300,000 wafers per month by 2021. That is an impressive 138% CAGR in capacity over the next four years. A closer look at that capacity reveals that the impressive 300,000 wafers per month will only amount to less than 10% of the total memory capacity for the industry. In a commodity market, the ability to gain and maintain market share is critical to operating at a profitable breakeven point.

Fig. 1: Chinese-owned memory manufacturers’ planned 300mm capacity. Source: Semico Fab Database, December 2017

Even though Chinese-owned capacity will grow to less than 10% of the total memory capacity, just the threat of competition already has begun to impact the market. As China expands its presence, the top three memory manufacturers also are adding capacity, resulting in downward pressure on memory prices. That’s good for memory customers, but it’s harder on memory manufacturers-especially small manufacturers struggling to improve yields and keep up with technology advances.

Today, small price drops may not be a major concern to memory manufacturers because DRAM prices grew more than 80% in 2017. That is the highest growth rate for DRAM ASPs since 1988, when DRAM prices grew more than 90%. Even when DRAM ASPs rose to more than $16 in 1995, the annual growth rate was slower because the increase occurred over a three-year timeframe. But the DRAM market is notorious for reversing a price trend. In 1998, just three years after reaching their highest level, DRAM prices plummeted to their lowest level in 10 years, plummeting almost 300%. The price decline was blamed partially on the entrance of Taiwan memory manufacturers.

Fig. 2: DRAM ASP versus total IC ASP. Source: Semico Research Corp. and SIA/WSTS

In addition to commodity market forces, another major challenge is the ability to keep up with technology. Today’s four dominant memory manufacturers have a good handle on their ability to introduce higher-density memory products and reach high-volume yields quickly. In addition, these companies are not shy about protecting their technology. Indictments already have been filed against former Micron employees, who are accused of stealing trade secrets to eventually share with a Chinese company.

On the surface, a quick look at the potential for China’s entrance into the memory market looks like a losing battle. The number of manufacturers, China’s government support, the strong customer base in China, and higher silicon wafer prices are other variables that will influence the strength and impact of the Chinese-based memory manufacturers. Semico believes the success of three Chinese-owned memory companies is highly unlikely, but the success of a single Chinese memory company is very probable.

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