Here's Why Competition in the DRAM Industry Will Intensify in 2014

DRAM output is surging, while chip lithography is shrinking. Can Samsung and Micron still continue to grow?

Mar 19, 2014 at 6:00PM

DRAM manufacturers may have a problem. Spot prices of the commodity have plunged almost 10% during the first week of March, and DRAMeXchange expects the downtrend to continue till the third quarter of fiscal year 2014. Let's understand the rationale behind this pessimistic outlook, and its potential impact on Micron (NASDAQ:MU) and Samsung (NASDAQOTH:SSNLF)

Rising output
The basis of the problem partly lies in the rising DRAM output. The fire-damaged Wuxi plant, for instance, is expected to fully recover in the current quarter. With that, I'M Investment & Securities estimates that SK Hynix's DRAM shipments will rise by 20% in the first quarter. If the recovery is sustainable, the chipmaker can increase its factory utilization rate and further hike its output in the coming quarters.

Investors should note that Samsung had hiked its DRAM production by 30,000 wafers per month, shortly after the Wuxi plant caught fire. But now that the plant is nearing full recovery, the giant has no plans to roll back its production levels. In fact, TrendForce estimates that Samsung will allocate about 25% of its wafer manufacturing capacity in 2014 -- up from the current 20%.

These output hikes have led management of Nanya Technology to conclude that DRAM supply will rise sharply by 26% during fiscal year 2014, and put pressure on DRAM spot prices.

Shrinking lithography
The shrinking fabrication process can fuel the downtrend of DRAM spot prices, as well. Since the development of volatile memory, manufacturers have been striving to shrink their manufacturing process. This allows them to increase chip density without inflating their fabrication costs.

Samsung, for instance, unveiled its 20nm DDR3 modules earlier this month. As compared to its equivalent 25nm DRAM modules, the consumer goods conglomerate claims that these next-gen chips are about 25% more energy efficient, and allow 30% higher fab productivity.

Micron intends to follow suit. The pure-play chipmaker is currently mass-producing 25nm DRAM modules, and plans to introduce its 20nm DRAM chips in the second half of fiscal year 2014. Technology-wise, it will be able to catch-up with Samsung only then.

With shrinking fabrication process, the average chip density increases, but the average cost of benchmark DRAM chips tends to plunge. Therefore, memory manufacturers may have to rely on volumetric growth to retain their profitability.

What to watch out for
The upcoming DDR4 memory standard, however, might turn things around. Intel (NASDAQ:INTC) will unveil its Skylake processors in the first half of 2015. According to its road map, these processors will add support to DDR4 memory, offering about 50% more bandwidth than equivalent DDR3 modules. This will allow Intel to deliver an unrivaled user experience, and contribute in extending its lead against Advanced Micro Devices in terms of raw processing power.

Samsung and Micron intend to initiate the volume production of these next-gen modules in the first half of fiscal year 2014; following this, these modules will be made available to retail, as well as enterprise customers. And if actual benchmarks reveal significant performance gains, Samsung and Micron might as well charge a premium for their new technology.

Final words
DRAM spot prices have historically been volatile. Therefore, risk-averse investors might want to limit their exposure to the industry.

With that said, I believe DRAM industry can deliver exceptional returns during the coming years. As I explained in my previous article, the introduction of LPDDR4 modules in 2014 will propel the growth of mobile DRAM industry. Where Micron -- being a pure-play memory manufacturer -- offers volatile, but explosive, growth, Samsung's diversified business operations result in modest, but balanced, growth.

Stocks to retire wealthy
It's no secret that investors tend to be impatient with the market, but the best investment strategy is to buy shares in solid businesses and keep them for the long term. In the special free report, "3 Stocks That Will Help You Retire Rich," The Motley Fool shares investment ideas and strategies that could help you build wealth for years to come. Click here to grab your free copy today.

Piyush Arora has no position in any stocks mentioned. The Motley Fool recommends Intel. The Motley Fool owns shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers