Citing information from market research firm Gartner Dataquest, a Samsung executive said during the company's Tech Forum here Monday (Dec. 8) that almost 66 percent of all DRAM bits consumed in 2009 would be DDR3, the third generation of double-data rate (DDR) synchronous memory.

So far, DDR3 has shown up mostly in high-end PCs and gaming systems, where its ability to access information faster than its predecessor has a noticeable impact on advanced graphics, video processing and other computing intensive applications.

Meanwhile, DRAM—which even for the volatile IC industry is especially prone to huge boom- and bust-cycles—is hurting. DRAM and the broader memory IC markets were already in the midst of a tough year when the world financial crisis hit and the market collapsed.

DRAM contract prices declined by 34 percent and spot prices dropped by 52 percent in the third quarter, according to the memory clearing house DRAMeXchange (Taipei, Taiwan). Average selling prices for some DRAM parts have fallen below manufacturers' variable costs, according to Nan Hyung Kim, a memory analyst for market research firm iSuppli Corp. (El Segundo, Calif.).

T.S. Jung, senior vice president of Samsung's memory division, said Samsung has had 1-Gbit DDR3 devices in full production at the 56-nm node since roughly the second quarter of this year. In April the company developed the first 50-nm, 2-Gb DDR3s, Jung said. These parts have been in production since October and completed Intel platforms certification in November, he said.

Evaporating price premium

Brian Matas, an analyst at IC Insights Inc. (Scottsdale, Ariz.),said Samsung's DDR3 projections are a little aggressive. He projects that DDR3 will account for about 17 to 20 percent of DRAM bits in 2009, with DDR2 accounting for about 61 percent. Matas added that he hated to disagree with Samsung, a memory powerhouse. The company said Monday that it estimates it holds 30 percent of the overall memory market and 30 percent of the DRAM market.

Bill Lauer, senior director of memory marketing at Micron Technology Inc. (Boise, Idaho) said that by the second half of 2009 there was no question that DDR3 would become the mainstream for new computers. But he also noted the growing market for netbooks, which will continue to make use of older technology across the board. Both Lauer and Jung said there would still be a strong market for DDR2.

Jung said Samsung expects DDR3 adoption to be strong despite the current economic downturn because the company has emphasized closing the price gap between DDR2 and DDR3 chips. At the 68-nm node, DDR3 devices cost more than 10 percent more than DD2 devices, Jung said. At 56-nm, the price gap is much smaller, he said. Though he declined to say exactly what the gap is, he added, "It's much less than 10 percent right now."

Matas said the DRAM vendors could currently command about a 10 to 15 percent premium on DDR3 parts versus DDR2. But, he added, that price premium will likely be short-lived once DDR3 goes mainstream and vendors flood the market with devices.

"There just aren't that many systems shipping with DDR3 right now that would allow them to maintain that premium," Matas said. For DRAM to recover, it's going to take a much more broad economic upturn that will increase the volume of shipments, he said.

Micron's Lauer agreed that price premiums on DDR3, which he said are already very low, will evaporate quickly. Going into the first quarter, he said, Micron is expecting there will be no premium to speak of. He said that, based on historical trends, prices for DDR2 are likely to firm and even rise as it becomes a legacy technology.

Moving below 60 nm

Kim of iSuppli said that if DDR3 chips become the top DRAM in 2009 it would be slightly ahead of schedule. When suppliers are losing money, he said, they tend to move to new product generations more quickly.

That's a double-edged sword, according to Kim, because although DDR3 devices will command a better price premium, they will cost more to produce. "Based on the current economic environment, it's very difficult to make the necessary investment," Kim said.

The key, according to Kim, is moving below 60 nm on DDR3, which provides the desirable economies of scale. Samsung is the early leader in DDR3, Kim said, partly because of the company's deep pockets.

Lauer said the transition to DDR3 would not be the savior for the DRAM industry, but he noted that DDR3 devices are larger, even at the same technology nodes, than their predecessors—something he said could "suck up more silicon" and help correct the oversupply problem.

Noting that several companies, including Micron and Hynix Semiconductor Inc., have eliminated production facilities, Lauer said, " I don't think DDR3 is going to be rebound point by any stretch, but when you look at all of the announced cutbacks, we are headed toward a supply correction that is pretty substantial."

Kim said iSuppli expects the market to improve late in the first quarter or the second quarter of 2009, though not necessarily because of DDR3, he said.

Though he agrees that DDR3 will take over as the mainstream DRAM in 2009, Kim said that volume will not be high enough early in the year to drive an upturn. Also, companies will spend more to produce DDR3, particularly in the early stages of adoption, he noted, so though margins may be better they will not be off the charts.

DRAM recovery in sight?

Kim said the DRAM market will improve due to expected supply growth reduction. DRAM bit growth will be 36.5% in 2009, compared to 72 percent in 2008 and 89 percent in 2007, according to iSuppli. Overall DRAM sales will decline 4.3 percent in 2009, compared to 19.8 percent in 2008 and 7.3 percent in 2007, according to the firm's projections.

Matas noted that DRAM vendors are cutting back on capacity investments and that impending consolidation would also help bring the supply-demand equation back into balance. He singled out Qimonda AG, the former memory unit of Infineon Technologies, which is currently in trouble and rumored to be on the block . He also said some Taiwanese DRAM vendors may be coming to the realization that they must exit the DRAM business or join forces with other companies.

Matas said the first half of 2009 is unlikely to bring relief for DRAMs. " I think we just have to swallow this as medicine and muddle our way through this," he said.

Matas projects that the DRAM industry and the broader IC industry will begin to recover in the second half of next year. For one thing, he said, the economic stimulus packages that have been announced in the U.S., Europe and China could be worth a total of more than $1 trillion, which be equal to between 1 and 2 percent of the world's gross domestic product. This money will take a while to work its way through the system, Matas said, but when it does it should set up the DRAM industry for a strong recovery in 2010 through 2012.

"I think it could be a very strong upturn as we look at the three-to-five year period," Matas said.

By: DocMemory
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