DRAM shortage predicted in 2000
By Will Wade
SAN DIEGO--It may be hard to imagine this year, after several quarters of intense price pressure punctuated by talk of overcapacity, die shrinks and cost cutting, but the semiconductor industry is headed for a memory shortage. That's the optimistic prediction coming from market research firm Dataquest, at its annual chip forecast here this week.
"We are expecting a DRAM shortage to emerge, big time, in late 2000 or early 2001," said Clark Fuhs, vice president and director of semiconductor manufacturing programs at Dataquest. He said the typical DRAM supply/demand cycle featured six down quarters followed by two positive years, and that the industry entered the dark period early this year. That means the worst should be over by late 1999, and the memory industry can expect higher demand -- and higher prices -- by the following year. "All of this is normal for the DRAM business," Fuhs added.
Overall, Dataquest is predicting that 1999 will be a recovery year for the DRAM market, with some 30% growth to nearly $20 billion. That follows three consecutive down years, as the market peaked at some $42 billion in 1995, and has fallen to less than $15 billion this year.
Jim Handy, director and principal analyst of the company's memories worldwide program, said that it generally takes two years for the memory industry to see the result of capital spending, or cuts. "When the market is good, everybody spends like a drunken sailor, and when it's bad like it is now, everybody cuts their capital expansion programs," he said. "The shortage we'll see in 2000 is the result of what's happening today."
What's happening today is consistent cuts in capital equipment budgets, from memory companies trying to stay afloat in the stormy sea of overcapacity and global economic turmoil. The overall chip industry has cut its equipment budget to $16.7 billion this year, down from $20.2 billion in 1997, and the may drop another 10% next year (see related coverage today). And that means when demand finally increases to meet capacity, the chip companies can again hope to see higher profit margins, as long as they are still in business when it happens.
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