Heralding DRAM industry consolidation:: Macquarie Research,

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Heralding DRAM industry consolidation
Event
 iSuppli released DRAM revenue market share in 2Q11. Big players tend to
take share from smaller players during a cyclical downturn, and 2Q11 was no
exception.
Impact
 Samsung recorded all-time high market share – 41.6% in 2Q11 vs 39.3%
in 1Q11. The combined share of Samsung and Hynix rose from 62.3% in
1Q11 to 65% in 2Q11. The top four players (Samsung, Hynix, Elpida and
Micron) captured 90.2% of the market in 2Q11, up from 88.8% in 1Q11.
Elpida's share gain appears to be attributable to its sales shift to Mobile
DRAM. Micron in the US now appears to focus on the profitable NAND flash
business instead of the money-losing DRAM market.
 Weak PC commodity DRAM pricing should result in more concentration
of DRAM companies. DDR3 price collapsed in 3Q11 to below cash costs of
most companies. Accordingly, high-cost producers started reducing wafer
input a couple of months ago. Moreover, specialty DRAM (mobile and server)
price, albeit down by 15–20% in 3Q11, is relatively healthier than the brutal
price erosion in PC commodity DRAM. Korean DRAM companies are speeding
up mass production of 3xnm node. All these explain the accelerating trend of
industry leaders getting bigger, with smaller players further marginalized from
the market. This is a long-term positive for the industry, in our view.
 We think a V-shaped recovery in PC commodity DRAM price is unlikely.
We believe it is premature to expect a V-shaped recovery in PC commodity
DRAM price, although DDR3 'spot' price rebounded last week. In our view,
there is nothing wrong with the industry supply side; rather, industry bit growth
has been much healthier than anticipated, since many companies missed
their own bit shipment target/guidance. In other words, the current downturn
seems to be purely driven by weak demand – for both PC unit and DRAM
content. We understand that the inventory digestion process is taking long
given weak end demand. Without a meaningful rebound in demand, PC
commodity DRAM price can only have limited upside for the rest of this year.
 Proliferation of Ultrabooks a blessing or curse for PC DRAM? We have
highlighted the hyper growth in the Ultrabook segment a few times. Andrew
Chang, our PC analyst in Taiwan, forecasts that the Ultrabook may comprise
25–30% of consumer notebook shipments in 2012. Although the current
Ultrabook models use PC DRAM (DDR3), the likelihood is growing that these
thin-form factor notebooks will use mobile DRAM (LPDDR3; low power DDR3)
from next year in light of longer battery life. We should then see more
divergence in performance between PC commodity DRAM and mobile DRAM
in the future.
Outlook
 We prefer the NAND flash sector (Toshiba and Samsung Electronics) to the
DRAM sector within Asian memory semiconductor. Even within the DRAM
segment, we believe investors’ portfolios should be focused on companies
with growing exposure to specialty DRAM. Elpida in Japan fits this criterion.
Given the likely prolonged downturn in PC commodity DRAM, we would avoid
high-cost pure PC DRAM companies in Taiwan.