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Also most of the demand comes from corporate so

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Unformatted text preview: valry among existing firms The DRAM Industry has been restructuring through the market recession. US companies controlled the market in the initial stages but Japanese companies led the market during the 1980s. After the 1990s, Korean companies beat the Japanese companies in the DRAM industry and became market leaders. Recently, Qimonda, one of the top five providers, became bankrupt 23 due to the DRAM market recession in 2007 and financial crisis in 2008. Through these series of events, around ten DRAM providers are competing in the DRAM industry. .... . .......... .. . . .................................................................................. .................................................................... . ... . . . . ... .............. ... . ..................... ........... ........... ............... ........................... ... ................................. ................... ..... . .. ..... ..... ........... ..... ............ .... .. ...... .. ........ .... .. ..... ..... ........... ..... ...... .................. ...... ... ........... ..... ...... ...... ........ ...... ..... ..... ...... ..... ...... ..... ...... ........... ........... ...... ........... ..... ........... ...... ..... ........... ..... ...... ..... ........ ..... ...... ..... ...... 84 86 88 90 92 94 96 98 00 02 04 . . .. ...... 06 08 Year Figure 3-3 Change in the number of DRAM providers (Source: WSTS, IDC, HANADAETOO Securities) The price fluctuation in the DRAM market is extreme depending on demand and supply. In 2007, the price of 1Gb DDR2 was around $10 dollars but it dropped to under $1 in 2008 due to oversupply of DRAM. But, DRAM providers could not stop production due to the high fixed cost and long lead time of fabrication. Also, cost leadership is the core factor for profitability. Therefore the competition for sales and technology development in the DRAM industry is very high. In sum, the threats from substitutes and new entrants are quite low but the power of 24 suppliers and customers are very high since DRAM is a high tech commodity. Also, competition among the existing firms is high due to the high fixed cost and the possibility of abnormal price competition. 3-3 DRAM Market Challenges The DRAM industry has some fundamental challenges regarding costs and technology. The fixed cost for design and fabrication is huge in this industry. For example, the R&D cost of a Igigabit DRAM was 1.5 billion dollars and equipment cost for that was 2.5 billion. This means the risk on return is increasing. Another challenge is the limitation of circuit integration. The DRAM industry has developed with Moore's law describing "a long-term trend in the history of computing hardware, in which the number of transistors that can be placed inexpensively on an integrated circuit has doubled approximately every two years or three years." 5 But, there is a physical limitation of integration and it is a critical but fundamental factor affecting the growth of the DRAM industry. Also, profits are getting squeezed as DRAM customers are now the consumers rather than corporates. Corporate customers are usually more sensitive to quality than to price. But, consumers are very price sensitive and it limits DRAM suppliers' profitability. This chapter will cover the rising cost of design and fabrication, the limitation of technology and price squeeze resulting from a change in the customer segment. 5 http://en.wikipedia.org/wiki/Moore'slaw 3-3-1 Increase of cost in fabrication The increasing cost of fabrication in the value chain of DRAM is the most critical portion when new fabrication for the new generation DRAM is developed. Among the entire fabrication process, photolithograph is the most crucial and the expensive process in terms of equipment cost. To overcome this challenge of fabrication cost, alliances and partnerships among DRAM suppliers has been expanded as shown in figure 3-4. Non-DRAM semiconductor providers such as Qualcomm, Intel and Texas Instruments have increased to the use of foundry services specialized in the fabrication process and this market is extending hugely since foundry services can reduce the risks incurred from huge investment for fixed assets. But, DRAM providers 6 cannot use foundry service due to its typical characteristic of development. SLams un gI Nanya Elpida . IRexchip Inotera Qimonda Powerchip Winbond Figure 3-4 Alliances and Partnership in the DRAM industry in 2008 (Source: IBK securities) 6 Development of DRAM asks whole processor together from design to fabrication. 26 The process of fabrication involves the circuit of DRAM being plated on silicon wafer by designed masks. The fabrication of DRAM is conducted through hundreds of detailed process with various equipments. This whole process needs to be conducted in an extremely clean environment. The critical cost increase of fabrication is investment in the lithography equipment. This equipment is in charge of about 20% of total fabrication fa...
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This note was uploaded on 01/22/2014 for the course BUAD 497 taught by Professor Degravel during the Fall '07 term at USC.

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