DRAM makers see silver lining in market's darkest cloud
By Margaret Ryan and Brian Fuller
SAN JOSE, Calif. - A dim ray of hope is glimmering on the world's battered DRAM vendors in the worst downturn in the history of the business.
The good news comes in the form of newly announced densities from major suppliers, the promise of the emerging PC 100 specification, which should bring higher margins, aggressive process standardization strategies, and a pause - perhaps brief - in the savage price declines that have continued for more than a year.
Despite the hope, some analysts continue to project the DRAM market could turn down as much as another 20 percent by the end of the year, forcing as many as six new fab closures or consolidations. The DRAM debacle is at the leading edge of the growing economic slump in electronics.
As for DRAMs, an upturn might not come before 2001, some say.
"The insanity must stop. We can't continue to take pricing to a place that effectively limits the competitive supply line," said Stephen Marlow, vice president of memory operations for Toshiba America Electronic Components Inc. (Irvine, Calif.).
The comment came as figures indicated price declines for both 16- and 64-Mbit DRAMs had leveled off in the past two weeks and some configurations were even edging up. Parts at the 16-Mbit level were trading in a range from a little more than $1 to about $3 apiece; 64-Mbit parts were trading from $7 to $12, depending on configurations, according to the American IC Exchange, a Web-based memory-information provider. Almost unilateral production cutbacks in the sector may finally be having the desired effect, some observers suggested.
"Supply isn't much in excess of demand," said Marlow. "But we have the psyche of huge excess and that fear of inventory. We all read the same book that said 'inventory is not an asset; it's a liability.' "
Another bright spot for the big DRAM players are new systems designed to Intel's PC 100 specification, which requires a memory bus speed of 100 MHz, up significantly from the current standard 66-MHz PC98 bus.
Vendors such as Hitachi, Micron, Toshiba, NEC and Samsung have their eyes set on the segment, where 64-Mbit and newer 128-Mbit synchronous devices with attendant CAS Latency 2 (CL2) requirements can command higher prices, generally in the server and workstation spaces.
Toshiba, for example, recently announced a 128-Mbit SDRAM, in x16, x8 and x4 organizations, that will see production ramp this quarter.
"PC 100 is as difficult to make, as we warned people it would be," said Jim Sogas, director of business development for Hitachi America's DRAM group (Brisbane, Calif.). "We said it would be hard to build and expensive. And it's come to fruition."
Supply may be limited for a while because the faster parts won't yield well at first, according to Avo Kanadjian, vice president of memory marketing at Samsung (San Jose, Calif.). The timing budget available in a 100-MHz SDRAM module is up to 150 percent narrower than PC66 devices. Such a module allows about 10 ns for sequential access, compared with 15 to 25 ns for EDO. PCB design requirements of the module will be key to the bus' performance, according to officials at Kingston Technology Co. (Fountain Valley, Calif.).
PC 100 will also bring another round of part differentiation into the market, with devices in different organizations commanding different prices, according to Will Mulhern, product marketing manager for memories at NEC Electronics Inc. (Mountain View, Calif.). "If volume grows the way the PC guys expect it to, it'll help memory manufacturers," he said.
Currently, PC 100 is at a 5 to 10 percent price premium because there are few vendors and PC 100 modules can be used in 66-MHz boxes by customers who want to simplify their inventory, said Micron Technology's DRAM product manager, Jeff Maillox.
But PC 100 designs won't necessarily be the DRAM vendors' salvation.
"DRAM manufacturers were all hoping that PC 100 would be limited sourcing so prices would be higher," said Jim Handy, a DRAM analyst at Dataquest Inc. (San Jose, Calif.). "They've all clamored to become early suppliers of these devices. When everybody rushes over to one side of the market, it takes all the profitability out of it."
Even so, other spurts of optimism are bubbling among the vendors.
Most maintain that bit growth rates continue to increase. Samsung's Kanadjian points out that in the second half of the year, there will be a need for 12 to 16 Mbytes of memory for graphics cards alone. "The discussion last year was it would be 16 Mbytes in base memory. Now, the average base memory for systems this year will be 60 Mbytes," he added.
Looking long term, Toshiba is pushing the industry trend toward process consolidation as a major strategic cost advantage over time.
The company created a mother fab-mirror fab model in which the process at the company's flagship Yokkaichi facility is copied exactly in its foundry, Winbond, and its joint venture fab with IBM: Dominion Semiconductor. On top of that it is aggressively pushing up the time at which memories and logic devices will emerge on the same line geometries. The idea is to create efficiencies but also work toward better merging memory and logic onto system ICs.
When the company's 64-Mbit devices began emerging in 1996, they did so on a 0.35-micron process, while standard logic was using 0.4 micron. By next year and the 256-Mbit generation, the memory will lead the standard logic parts by only a little bit while sharing the same 0.18-micron design rules. By 2001, Toshiba's 1-Gbit DRAM, its system ICs and its standard logic all will be fabricated on 0.15-micron design rules, Marlow said.
Micron (Boise, Idaho), which recently purchased Texas Instruments' memory business, is also synchronizing its fab processes. TI fabs, which are mostly using 0.3- to 0.35-micron process technology, will be upgraded to Micron's 0.21-micron process technology, officials said.
Even with these fireflies of hope, gloom pervades an industry that Dataquest's Handy predicts won't pick up until 2001. In fact, business is so bad that most vendors are selling memories at below cost, and five or six fabs will have to shut soon for supply-and-demand to balance, he added.
Steve Cullen, senior analyst of DRAMs at In-Stat Inc. (Scottsdale, Ariz.), dropped his DRAM forecast to $15.6 billion in early 1998 and now he says that's beginning to look optimistic. The DRAM market totaled $19.8 billion for 1997.
Thomas Kurlak, semiconductor analyst at Merrill Lynch (New York), changed his semiconductor forecast from flat for 1998 to a recession of -5 percent to -10 percent for worldwide semiconductor sales. Bit growth slowed to 50 to 60 percent from 90 to 100 percent 18 months ago, according to Kurlak's estimate.
"May sales [according to WSTS] were down 13 percent, and we'd actually have to see an upturn to end up at -10 percent," Kurlak said. "We could see the market decrease by 20 percent by the end of the year if it keeps going at this rate."
The autumn will bring Europe deeper into the downturn, with a slowdown in the purchase of computers by corporations and consumers, according to Kurlak.
Morgan Stanley Dean Witter semiconductor analyst Mark Edelstone said he believes "every executive has got to be rethinking their DRAM strategy." And the only way out is for companies cut back or exit the DRAM business.
Such talk made its way to Fujitsu, where an official was quoted late last month as saying the Japanese giant was considering leaving the memory business. After a weekend lull, Takamitsu Tsuchimoto, executive vice president of Fujitsu, issued a statement asserting the company and its divisions worldwide would continue to work closely with customers to develop memory products that target their system requirements.
Even if they wanted to, major players probably couldn't just drop the business and push on in more profitable areas; the move would kill them entirely.
"You can't afford to get out [of DRAMs] unless you get out of semiconductors entirely," said NEC's Mulhern. "You can't pay those other business units without memory driving volume and process technology."
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