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Having slimmed down and gained some self-discipline, the dynamic random access memory (DRAM) business is posting its highest profits in nearly three years, allowing suppliers to thrive despite the decline of the PC business that once dominated market demand.

Operating margins climbed to a lofty 27% during Q2 2013, up from 11% in the first quarter, according to IHS market tracking company. This represented the highest profitability since the 33% level attained in the third quarter of 2010. Manufacturers reported improved operating margins because of higher average selling prices (ASP).

Operating margins have climbed for two straight quarters after six successive periods of decline. The increase in operating margin during the last two quarters stemmed from the encouraging rise of DRAM ASPs. After 10 quarters of continuous contraction, DRAM ASPs jumped 4% in the first quarter, and then powered up another 12% in the second quarter, boosting operating margins in the process.

“The DRAM supply base today is vastly different from the way it was two years ago, when ASPs sometimes plunged by nearly one-third within a single quarter. For the past two quarters, however, DRAM suppliers have been enjoying the fruits of industry consolidation with only three major players now left in the market, down from five in 2008. The resulting realignment in capacity has brought stability to a market that has undergone a major transition with the decline of the PC market,” said Dee Robinson, senior analyst of memory and storage at IHS.

PC Share of DRAM Demand Declines

For a generation, PCs dominated DRAM demand, accounting for 65 to 85% of sales throughout the 1980s, 1990s and 2000s. However, IHS in 2012 noted that the share of traditional PCs in DRAM revenue fell to less than 50% for the first time in at least 30 years, marking a major milestone for the industry.

The primary cause of this shift is the decline in PC sales, combined with booming markets for wireless devices, which also use DRAM.

Getting Strict

Along with consolidation, strict capacity management is also playing an important role in the industry’s improved fortunes. While oversupply was a recurring problem in the past, DRAM makers have been at pains to rein in any over exuberance in production. The tight controls have steadied conditions in supply and demand, and the positive margins enjoyed in the first half of the year should continue for the rest of 2013, IHS believes.

The best operating margins in the second quarter belonged to SK Hynix at an impressive 33%, and to Elpida Memory at an equally remarkable 32%. Both were superior to the 28% margin posted by top DRAM producer Samsung.

Three suppliers whose margins were in negative territory in the first quarter turned positive in the second quarter. These included Micron Technology, Elpida’s new owner, up to 12%; Inotera, reversing its decline to reach a powerful 27%; and Winbond Electronics which had the lowest margin growth at 6%.

Two smaller producers offered a mixed picture. Nanya Technology enjoyed a minimal uptake in margin, up just 1%, as costs increased due to changing product mix. Meanwhile, Powerchip Technology posted much better results with the third-best margin overall at 29%.

The DRAM industry is in fine form and strength at present, a notable turnaround coming from a major bust in 2011 followed by a milder downturn for most of 2012.  Even with a languishing PC market, DRAM suppliers are being savvy, and the vastly improved results are telling.

Tags: DRAM, Business, DDR2, DDR3, Samsung, SK Hynix, Micron, Elpida, Powerchip Semiconductor, Inotera, Nanya

Discussion

Comments currently: 2
Discussion started: 10/19/13 02:05:00 PM
Latest comment: 10/21/13 07:16:43 PM

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1. 
PRICE FIXING AND NO GOV IS GIVING AN F
1 0 [Posted by: medo  | Date: 10/19/13 02:05:00 PM]
Reply

2. 
ofc they prosper... have you seen the damn prices lately?
They increased a lot, even doubled in some kits since that time last year...

I could get a 4GB low end dimm for 20 euro while I need 35 now...
0 0 [Posted by: nitro912gr  | Date: 10/21/13 07:16:43 PM]
Reply

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