Third-party DRAM module market to rebound in 2008

USA: Following a miserable 2007, the global DRAM module market is expected to rebound gradually in 2008 due to the projected recovery in the overall memory industry, iSuppli Corp. predicts.

Global revenue from third-party shipments of DRAM modules, i.e. components that contain DRAM chips for use in PCs and other electronic products, is expected to rise to $8.9 billion in 2008, up 9.4 percent from $8.1 billion in 2007. In contrast, third-party DRAM module revenue declined 33.5 percent in 2007, down from $12.2 billion in 2006.

Third party refers to companies that are dedicated to the memory module business, and that do not sell DRAM itself, or the end products the memory is used in, such as PCs. The major business of third-party module suppliers includes aftermarket upgrade module sales, module sales to white-box PC makers and contract module manufacturing for OEMs or suppliers.

When the DRAM market sneezes, the third-party DRAM module market gets pneumonia,” said John Lei, analyst, memory/storage IC systems for iSuppli.

“Last year was disastrous for the DRAM chip industry, due to an acute oversupply and the resulting price plunge. This caused global DRAM chip revenue to decline by 7.3 percent. The poor conditions in DRAM chips led to even worse conditions in the DRAM module business. The third-party DRAM module makers bore the brunt of the downturn, because they lost market share to their chip suppliers.”

Sink or swim

With such poor market conditions and intense competition, most of the leading third-party DRAM module makers suffered revenue declines in 2007.

“Looking at the Top-10 third-party DRAM module maker rankings for 2007, there were two groups of companies: those that were able to keep their heads above water, and those that were swamped by the market-downturn deluge,” Lei said.

Market winners included leading supplier Kingston Technology Corp., which managed to increase its DRAM module revenue by 1.1 percent in 2007. And while No.-2 Smart Modular Technologies Inc. suffered a 3.5 percent decline in revenue, the company still outperformed the overall industry, allowing it to expand its market share for the year to 7.9 percent, up from 5.5 percent in 2006. Kingston and Smart did well because they maintain full spectrums of DRAM module business activities, ranging from aftermarket sales to well-diversified OEM businesses.

The biggest winner on a percentage basis was No.-6 ranked Apacer Technology Inc., which expanded its sales by a remarkable 24.4 percent in 2007. The company benefitted from a deal made by its parent company, PC maker Acer Inc., to acquire Gateway, which massively expanded Apacer’s sales. Because of this, Apacer in 2007 came very close to re-entering the Top-5 rankings for the first time since 2005.

Module dropouts?

On the other side of the equation, many of the second-tier, third-party DRAM module makers now are considering exiting the business.

“Many of the smaller players are struggling over the question of whether to quit the DRAM module market,” Lei said. “Although market conditions are set to improve soon due to the inevitable price rebound, it’s uncertain how long these companies can stay in the business given the top-tier suppliers’ aggressive moves to expand their market share.”

Despite these challenges, the third-party DRAM module business still offers attractive growth opportunities to those companies able stay afloat.

“Third-party module makers that are able to control inventory and to develop effective strategies for competing in the market stand to return to profitability and to recapture the market share they lost to their chip suppliers in 2007,” Lei said.

The table here presents iSuppli’s estimate of third-party DRAM module market share in 2007.