The graphics memory (GDDR) market faces a changing landscape as leading designers of microprocessors are about to integrate graphics processors into central processing units, according to market research firm iSuppli. While the demand towards GDDR will be high due to the fact that it is used inside game consoles, the extinction of low-end and eventually entry-level mainstream graphics cards may shrink the market.

A specialty segment of the larger DRAM market, the graphics memory industry is projected to grow only slightly at the beginning of next year, despite its relative insulation from the more disruptive fluctuations of the commodity memory market. Graphics in the first quarter of 2011 will make up 5% of the overall market for memory, up from 4.9%  in the Q3 and Q4 of 2010, iSuppli data indicate.

While it’s expected to maintain its course through most of the year, the market will then begin a slight but steady decline starting in the final quarter of 2011. By 2014, the graphic memory segment will have lost another half of a percentage point of the total memory market, accounting for roughly 4.4%.

Such figures point to a contentious, muddy outlook about future prospects for the segment. While graphic memory commands a price premium and is more stable in demand compared to commodity DRAM, the market is not projected to grow dramatically in the future, iSuppli research bears out. In the coming years, demand for graphic memory may ease as manufacturing trends favor the integration of the graphic processing unit (GPU). There is, however, another scenario: as the demand towards personal computers is growing in general and the importance of graphics processors is growing, the market of discrete GPUs may increase and so will the demand towards GDDR.

The flattening of the graphics segment is surprising, considering the attractive margins enjoyed by the segment and the intense efforts among fierce rivals and major players alike to make their presence felt in the market.

Micron, for instance, has been developing a graphics memory product for some time, hiring key executives from now-bankrupt Qimonda AG of Germany, whose commanding share of market once rivaled that of leader Samsung Electronics. Qimonda’s bankruptcy, in turn, has benefited Korean player Hynix Semiconductor, which rushed in to fill the gap and is now Samsung’s main contender for hefty spoils.

Another player, Elpida Memory from Japan, earlier this year begain the production of memory technology specific to graphic cards known as GDDR3 and GDDR5. Elpida’s present share of market may be small, but the company’s entrance into the segment is likely to shake up things. As additional competitors enter the market, Samsung and Hynix may well be forced to surrender market share to Elpida and other new upstarts.

All told, the graphics market is expected to remain a build-to-order segment, with prices based more on manufacturing costs than overall supply-demand dynamics. And while graphics memory will continue to be demanded by game-console makers and high-end graphics cards, the advent of better-integrated products could likely threaten the GPU market.

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