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To: Mark Oliver who wrote (562)	3/30/1999 10:34:00 PM
From: Mark Oliver	Read Replies (1) \| Respond to of 723

DRAM Market Back in Gear 1999 expected to bring return of boom cycle By Jonathan Cassell From Electronic News--March 29, 1999 San Diego--The DRAM famine is over; now let the feast begin. This was the news delivered last week by the market research firm Dataquest as it predicted the dollar value of the worldwide DRAM market would grow by nearly 50 percent in 1999, after shrinking by 27 percent in 1998. With demand for DRAM on the rise and prices remaining stable, actual DRAM sales growth in 1999 could easily exceed that rate, the company said last week here at its Dataquest Predicts conference. The new forecast represents a significant increase compared to recent Dataquest predictions. The forecast is almost 20 percentage points higher than Dataquest's previous DRAM outlook issued in September 1998. "All kinds of things came together to drive the forecast up," said Jim Handy, director and principal analyst for Dataquest's memories program. "One is that 1998 was a little lower than we had anticipated. But we also see that DRAM bit growth will be higher than we had anticipated and we believe that prices began to flatten out starting in July 1998." If the forecast comes true, 1999 will mark the end of a disastrous three-year slide in the DRAM market, marking the first year since 1995 that the DRAM market will grow. Dataquest expects DRAM sales to rise to $22.6 billion in 1999, up 49 percent from $15.1 billion in 1998. This will be the best year for the DRAM market since 1996, when revenues were $25.8 billion. Dataquest predicts 1999 will mark the beginning of a new, three-year growth cycle for the DRAM market. DRAM sales are expected to grow to $36.1 billion in 2000 and $59.9 billion in 2001. The year 2001 will mark the first time that sales will exceed the peak level of $41.8 billion in 1995. The Dataquest figures are among the first hard numbers to support the turnaround in the DRAM market that has been heralded by some suppliers since third quarter of 1998. Most suppliers are still suffering under margin pressure and have been able to offer only anecdotal evidence of a turnaround in the market. “We have not really seen prices move much, but there have benn indicators since last July that the market had begun to turn,” said Mark Ellsberry, vice president of memory marketing at Hyundai Electronics Industries in San Jose, Calif. The fact that prices did not drop late last year, even after suppliers were able to lower their costs through production and design enhancements, indicated to me that demand was already ahead of supply, he noted. The factors driving the stunning recovery in the DRAM market originate in both the supply and demand sides of the equation. On the supply side, capital spending by DRAM manufacturers has slowed to a crawl in recent years. Memory companies will cut purchases of capital equipment to less than $10 billion in 1999, down from more than $20 billion in 1998. This will help eliminate the severe capacity overcapacity that has plagued the market, according to Dataquest. Overcapacity is already coming to an end. On the demand side, PC sales are expected to grow at a compound annual rate of 14 percent, rising to 157 million units by 2002, up from 105 million in 1999. However, these PCs will be using an increasing amount of DRAM per system, causing growth in the number of DRAM bits sold to rise at a compound annual rate of nearly 70 percent from 1999 to 2001. New PCs with clock rates of 400MHz and faster will require new high-speed memories, such as Direct Rambus DRAM (D-RDRAM). By the year 2002, D-RDRAM will account for 70 percent of the total DRAM market, up from less than 10 percent in 1999, Dataquest predicted. The relatively high price tag and low availability of such parts will help to maintain DRAM pricing and prevent the severe erosion that has plagued the market over the past three years. The average selling price (ASP) of a megabyte of DRAM will remain at $1.30 from 1999 to 2001. This stable pricing contrasts sharply with the last three years, when the ASP fell from $26.80 in 1995 to $1.50 in 1998. Other market research firms and associations have chimed in with optimistic DRAM forecasts for 1999 as well. The U.S. Semiconductor Industry Association in November predicted the worldwide DRAM market in 1999 would grow to $16 billion, up 25 percent from $12.9 billion in 1998. Cahners In-Stat Group predicts DRAM sales will rise to $20.5 billion in 1999, up 46.5 percent from $14 billion in 1998. Semico Research Corp. in January predicted DRAM revenue would reach $23.3 billion in 1999, up 66 percent from $14 billion in 1998. However, the scenario for the DRAM recovery is not entirely rosy. Dataquest's Handy points out that DRAM manufacturers are likely to lose in the neighborhood of $5 billion in 1999 because they are forced to sell parts at prices below cost. “Some call it a recovery. If it's a recovery, how come it hurts so bad?” Handy quipped. The likely impact of the losses will be a continued consolidation in the market, as companies join forces or drop out of the DRAM race altogether. Furthermore, Dataquest is predicting yet another downturn in the DRAM market will commence in the year 2002, as capacity once again begins to exceed demand. The year 2002 should see DRAM sales of $41.4 billion, down more than 30 percent from 2001. While news of yet another downturn could be discouraging, it reflects a realization among the analysis community about the permanency of the cyclical nature of the DRAM business.