By William Fellows
Industry forecasters are predicting the DRAM industry will pull out of its nosedive by the third quarter when, Credit Suisse First Boston estimates, demand and supply will be in balance. The industry’s remedy for oversupply of memory has been some considerable time taking effect and the landscape has changed immeasurably with some companies – including Motorola and Texas Instruments – pulling the plug on their memory businesses entirely with others like Micron picking up the pieces. The Japanese giants have had lumps knocked out of them, and the Koreans have had to restructure their interests lock stock and barrel. The first half of 1999 is expected to bring a small decline in pricing – 64Mbit cost around $9 or $10 now compared with $6 last June – and a combination of reduced capacity and surging demand will bring the market back into equilibrium towards the end of the year. The DRAM market as a whole will grow more slowly than in 1998 – 75% versus 92% – because of a 50% decline in spending by DRAM companies, the slowing pace of technology shrinking as fabs hit the 0.18 micron wall. In addition, the effect of Rambus DRAM supply ramping up in the fourth quarter of the year is expected to slow bit growth because of the lower yields associated with its production. The anticipated surge in PC spending will help demand as 100Mb-plus basic RAM configurations become standard through 1999 over the 64Mb most PCs shipped with in 1998. CSFB thinks the median will factor out at around 70Mb RAM for PCs costing $800 and up. 300mm wafers aren’t going to be a factor until 2001, CSFB believes, given that no-one except Siemens even has a prototype fab.
Europe pays more for PCs
In Asia, semiconductor capacity is likely to remain stable with spending only on technology upgrades although Samsung is expected to increase capacity at its Austin, Texas fab. In South Korea, Hyundai’s acquisition of LG Semicon’s semiconductor business will slow investment while Japanese companies will undertake no capital spending and continue to outsource or transfer business to Taiwan, which will account for 12% of the worldwide market in 1999, up from 9% in 1998. NEC and Motorola are expected to continue their outsourcing strategies and CSFB believes others will follow their example. Moreover, as IBM reaches production capacity by the end of the second quarter the constraint will give further impetus to the outsourcing trend. In Europe the telephony market is driving demand for semiconductors and other digital components, CSFB believes. Demand for cell phones is exceeding expectations – the UK added 2.5 million new subscribers in the fourth quarter of 1998, up from less than 1 million in the same period in 1997 – and most of them are on digital rather than analog devices. More importantly, the average number of minutes per call is rising fast and means that operators and service providers are spending heavily on equipment. With European consumers having to pay between 40% to 50% more than their US counterparts for the same PC, it’s little wonder the consumer market is not driving the European PC markets as it is in the US. In Europe a low-cost box comes in around $1,300, which is regarded as a solid mid-range price tag in the US. Furthermore in Europe the internet is not the same industry driver as it is in the US (with the exception of Scandinavia), mainly because of the per minute access charges levied by European telcos for local calls. With average ISP connections of $15 to $20 a month, plus connect charges of two cents or more per minute, surfing gets expensive. Consumer electronics spending has been helped though by the introduction of digital television in the UK last November. Philips and Panasonic are shipping wide screen televisions while Grundig and Pace (with Philips) are selling most of the set-tops.
