In the end of February PC memory prices in the open market dropped already below $3 for a 256Mbit DDR chip. It means the price hit the psychologically important point, which is considered by many analysts to be the prime cost of these chips. That’s the outcome of the slump from the $5-6 where the chips were quite recently. As soon as memory makers started little by little making profits or hoping to make some, they again had to confront the depressing quarterly reports. How long is this going to last? Or we are up to another price rise bringing a respite for DRAM manufacturers and a trial for our purses? Let’s sort it out.

Semiconductors: Where to Grow?

Big things come first. At the end of the last year the semiconductor industry pulled itself together and squeezed out a tiny sales growth: from $140 to $141 billion. This was largely due to increased demand on wireless equipment, including chips for mobile phones. Moreover, the only region to show growth was Asia Pacific (29% above 2001), while America suffered 13% sales drop, Japan and Europe lost 8% each.

And what will happen next? As for the current year, some quite respectable sources, like Semiconductor Industry Association or Merrill Lynch, forecast 12-20% growth, that is, up to $157.5-$169.3 billion. And once again the main locomotive power of the growth will be chips for wireless devices. These forecasts are more than optimistic; the analysts hope for a market rebirth, although there are still strong doubts about the growth scale. Moreover, the manufacturers themselves don’t seem to be agreeing with such a bright vision of their own future. A nice example: the CEO of TSMC expressed a warning at his last meeting with the company investors: “Many high-tech company CEOs are very conservative, even pessimistic, about 2003”.

We may recall the same analysts predicting semiconductor industry renewal a year ago. They all spoke of an imminent demand growth, but the results turned to be completely different. Actually, such optimistic forecasts may play a bad trick on those market participants who trusted these forecasts. It may turn out really bad, if they start increasing the production volumes and amount of goods in stock hoping for demand growth, and the growth will actually never happen in reality.

Just have a look around: do you see any evident prerequisites for improvement of the economical situation in America, Europe or Japan? While their politicians practice war/antiwar rhetoric and economists are more concerned with oil prices and nearly baffled economy, we are more likely to see companies cut short their expenses, including money spent on new PCs. We doubt anything is going to radically change here in 2003.

About Growing Things: Demand

Well, as far as the DRAM section of the semiconductor industry is concerned, there will surely be some noticeable growth, dozens of percents, somewhere about 30-40%. It will be at the last year’s level when total memory sales volume grew by 36%, from $11.2 to $15.3 billion. The growth is even more (41%) if measured quantitatively, in chips. The number of chips produced is growing – their average price is lowering…

Why we give such a forecast for the DRAM market? Firstly, this market grows according to demand. Today the production facilities of this industry sector are used at 60-70% of their full capacity. Moreover, a number of manufacturers have their 300mm fabs currently under construction. So, the last-year 36% and currently predicted 30-40% growth this year is, roughly speaking, the growth of demand.