iSuppli fast facts on Qimonda insolvency

EL SEGUNDO, USA: To assist the media’s coverage of Qimonda AG’s insolvency, iSuppli Corp. is issuing the following fast facts on the topic:

* Qimonda in third quarter of 2008 held 9.7 percent of the global DRAM unit shipments in terms of its own branded sales. However, its own production currently represents only 5 percent of the DRAM market because its production partners, such as Inotera and Winbond, produce DRAM for Qimonda.

* “The primary factors driving Qimonda into insolvency are the weak global macroeconomic conditions and the terrible state of the DRAM market,” said Nam Hyung Kim, director and chief analyst, memory, for iSuppli. “Since 2007, DRAM suppliers have spent billions on new capacity even amid weakening demand, contributing to oversupply, price declines and a massive market downturn that is hurting all suppliers.” Global per-bit DRAM prices fell by 51 percent in 2007 and by 53 percent respectively in 2008, compared to the annual average of 30 percent.

* “Global DRAM revenue fell by 19.8 percent in 2008 to $25.2 billion, down from $31.5 billion in 2007, according to iSuppli’s preliminary estimate,” Kim said. “This marks a second year of decline following the 7 percent drop in 2007. The troubled DRAM market is expected to suffer another revenue decline of 4.3 percent in 2009.” The attached figure presents iSuppli’s estimate and forecast of annual global DRAM market revenue.

* “The secondary factor behind today’s news is Qimonda during past years did not maintain the scale and leadership in DRAM manufacturing process technology that are essential to remain competitive in the market,” Kim added. “In terms of the process, Qimonda’s trench technology for DRAM manufacturing reached the end off its life early last year, but its new buried-word line technology has not been ramped yet, leaving it  behind its competitors. On the scale front, the company owns much smaller fabs than its major competitors, resulting in an unacceptably high cost structure in the cutthroat DRAM market.”

* “The final factor behind Qimonda’s insolvency is its rate of cash burn,” Kim said. “The company had 630 million euros in cash at the end of June 2008. This was far more than the Taiwanese DRAM suppliers and was close to its competitors such as Hynix and Elpida at that time. However, due to its high cost structure, Qimonda’s cash burn rate during the past six months must have been much higher than its competitors’ levels. The company has not yet announced its earnings for the third calendar quarter of 2008. Because of this, the industry expected high losses and a huge cash burn for the period.”

* “Qimonda’s insolvency will have little immediate impact on the current oversupply situation in the DRAM market, since the company holds a small share of global production,” Kim said. “However, for the full year of 2009, Qimonda’s insolvency means global DRAM bit shipment growth now is expected to be less than the 30 percent level, down from iSuppli’s previous forecast of 35 percent. This will reduce supply growth, helping to stabilize pricing, and helping to mitigate the oversupply-driven downturn.”

* Looking at specific DRAM segments, the graphics and server markets will be most impacted by this event. Qimonda in third quarter of 2008 accounted for 26 percent of global unit shipments of graphic DRAMs, which are used in the video subsystems in computers and consumer electronics devices, rather than for main memory. The company also controlled 15 to 20 percent of the global market for DRAM for servers. In PC main memory, the dominant application for DRAM, Qimonda accounted for less than 10 percent of unit shipments. Therefore, the potential impact of the insolvency will come in the graphics and server markets, rather than on the desktop/laptop PC side.