Memory dominates 2006 semiconductor sales

Growth in the memory sector in 2006 was twice as fast as that of the overall semiconductor industry, according to new data from Gartner.

Fuelled by solid growth in DRam, worldwide memory revenue is on pace to grow 21.5 per cent, with revenue surpassing $60.4bn in 2006, according to the analyst firm.

In 2007, Gartner predicts that the sector will experience slower growth, with worldwide memory revenue reaching $66.3bn, a 9.8 per cent increase from 2006.

"The memory sector has experienced strong revenue growth in 2006, as conditions for DRam have continued to improve, with supply tightly controlled by suppliers and average selling prices holding firm,” said Richard Gordon, managing vice president at Gartner.

"In contrast, prices for Nand Flash memory have declined further than expected as competition has intensified, so revenue growth in the Nand sector in 2006 is modest at best, compared with stellar growth for the past four years."

This strong demand for memory meant that vendors such as Infineon Technologies' Qimonda, Hynix Semiconductor and Elpida Memory, substantially outperformed the market in 2006 and registered strong revenue growth in Gartner Dataquest's preliminary market share rankings.

"We expect DRam revenue to keep growing in 2007, although support from the Nand Flash market will be less of a factor because we expect manufacturers to convert production capacity back to DRam in the coming quarters," Gordon added.

Worldwide DRam revenue is forecast to reach $33.9bn in 2006, a 34.4 per cent increase from 2005. DRam revenue is estimated to grow 15 per cent in 2007 to $39bn. In 2008, this segment will peak, and the market is expected to decline in 2009.

According to Gartner's estimates, the first half of 2007 will be slightly oversupplied, with the second half of 2007 moving into undersupply.

2008 is expected to be balanced, with the first half of 2008 in undersupply and the third quarter of 2008 coming into balance before an oversupply in the fourth quarter of 2008.

"The DRam market is the most volatile sector of the semiconductor industry," said Andrew Norwood, research vice president at Gartner.

"Continued changes in production allocation, fluctuating demand patterns and the unrelenting advance of semiconductor technology make this a high-risk business for suppliers and investors."

He added that, during 2005, when the DRam industry was battling with mild oversupply, Nand Flash was able to soak up some of the excess capacity, saving the DRam industry from severe oversupply and a strong revenue decline. In 2006, the DRam industry returned the favour.

Gartner pointed out that the fate of these two memory technologies are intertwined because of the high participation of DRam vendors in the Nand market.

In terms of megabyte shipments, 46 per cent of DRam vendors will also compete in the Nand market in 2007.

“DRam suppliers must acquire the ability to switch capacity between DRam and Nand Flash memory as efficiently as possible to take advantage of prevailing conditions," Norwood said.

"Suppliers without this ability will be at a significant disadvantage during the next cycle."