Optimists review DRAM curtailments so far this downturn:
End May Be Near For DRAMs' Darkest Days
(08/06/98; 11:15 a.m. ET)
By Margaret Quan and Peter Clarke, EE Times
The latest round of plant closures and spending
reductions to hit the dynamic RAM (DRAM) industry
may actually be a good thing, inasmuch as they indicate
the bottom of the industry's downturn is near, analysts
said.
Siemens AG's recent decision to close a 16-megabit
DRAM plant in the United Kingdom as one of several
measures by DRAM makers around the world to
reduce the excess manufacturing capacity that has
contributed to spiraling memory prices. Although further
actions will be necessary, the moves have a positive
side, analysts said.
"The clearest sign that we're near the bottom is
everyone is so negative -- companies are closing fabs,
lowering production levels and reducing capital
spending," said Bill McClean, president of IC Insights,
in Scottsdale, Ariz. "The industry is preparing the way
for an upturn."
But that upturn won't take place until at least mid-1999,
analysts said. George Iwanyc, memory-chip analyst for
Dataquest, in San Jose, Calif., said he estimates another
five or six DRAM fabs must be taken offline before the
DRAM market's supply balances demand. The market
won't reach equilibrium until 2000, he said.
The DRAM industry's severe overcapacity has driven
prices down 50 percent since 1995, and 1997 marked
the third consecutive year of declining revenue for the
industry. Twenty-seven manufacturers vie for a market
that's expected to total $13 billion this year. Analysts
said they estimate the world's DRAM makers will lose
$10 billion this year.
In response to these dismal market conditions, Texas
Instruments recently sold its DRAM business to Micron
Technology, Japanese and Korean DRAM makers
have shut down plants for extended holiday weekends
to reduce output, and Japanese manufacturers have said
they plan to trim their capital investments.
Siemens' decision to cease operations at its 16-megabit
DRAM plant in North Tyneside, United Kingdom, was
apparently a tough decision because the plant is only 15
months old and runs a 0.25-micron leading-edge
process. Siemens had invested about $1 billion in the
fab, and its closing will affect more than 1,000 workers.
A few second- and third-tier manufacturers are likely to
exit the DRAM business before the year is through, said
Sherry Garber, DRAM analyst at Semico Research, in
Phoenix. Small manufacturers haven't kept up with
technology and would have to make serious investments
to ramp up 64-megabit production and move to
256-megabit production, she said.
You Play, You Pay
The industry is now paying the price for the "good
times" of 1993 to 1995 and for thinking those boom
years would never end, said Moshe Handelsman,
president of Advanced Forecasting, in Cupertino, Calif.
A number of companies entered the market at that time
when DRAM prices were profitable and increasing.
Siemens expanded its DRAM capacity after the boom.
"In 1992, Siemens said it would just keep its hand in
DRAMs," said McClean. "Then after the DRAM
boom, they jumped in with both feet. They saw the
1996 downturn as a time to take advantage of the
weakness of the Korean companies at the time, and
even in 1997, they continued to grow capacity in an
effort to gain market share."
Early this year, Siemens seemed ready to lose some
money in DRAMs as long as it would be able to grow
market share. But Siemens' corporate management
didn't have the save view as the Semiconductor Group,
analyst McClean said.
"With any vertically integrated company, the chip
business is good as long as it helps the
electronic-systems side of the business," he said. "But
the moment it starts to lose money and is affected by a
downturn, the corporation doesn't want any part of it."
Siemens Semiconductor Group has lost $600 million
over the past three quarters. The company didn't yet
have the economies of scale to be as cost-effective as
its DRAM competitors. "The rule in commodities is only
the low-cost manufacturers prevail," said Handelsman.
"If a company doesn't have the economy of scale and
cost effectiveness, sooner or later, they'll lose."
Siemens also failed to analyze the market situation
properly, said a source who has been trying to attract a
buyer for Siemens' North Tyneside site, speaking on
condition of anonymity. Originally slated to make smart
card chips for the telecommunications industry, the site
was also to have included a design center. But it
became a DRAM facility instead.
"They said they would run the DRAM process to get
the fab up and running," the source said, but "there's no
design center there at all."
And despite its leading-edge process technology, the
North Tyneside fab was the "easiest" of the company's
plants to close, the source said. It would have been
more difficult for Siemens to close any of its
joint-venture fabs: the White Oaks venture with
Motorola outside Richmond, Va.; its facility with IBM
in Essonnes, France; and ProMOS in Hsinchu, Taiwan,
with Mosel Vitelic. And the company "couldn't shut
Dresden [a 300-millimeter wafer line that will be
operated with Motorola] because of the uproar that
would ensue within the German government," the
source said.
While Siemens said it will try to find a buyer for North
Tyneside, expectations are not high that a buyer will be
found, given the efforts Siemens has already made.
Closing the plant will remove about 20 percent of
Siemens' DRAM production, and will do little on the
global scale to redress the market's excess
manufacturing capacity.
DRAM Plants To Take Tumble
Handelsman said he expects to see more companies
close DRAM facilities. When the downturn is over, the
industry will have fewer players that will be very large
and have cost-effective operations, he said.
"Siemens doesn't have the price structure of Micron,
and they can only afford to compete on price for a
limited time -- they can't lose money forever," he said.
The closing of the North Tyneside plant indicates
Siemens' commitment to the DRAM market, and frees
it to move on to 64-megabit DRAM devices, Garber
said. The market's top 10 players have already
declared the end of life for the 16-Mbit DRAM, and
Siemens is just taking its turn, she said.
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