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28% Revenue Decline Is Good News?

El Segundo (CA) - iSuppli has released its revenue estimates for the DRAM industry for the fourth quarter of last year. It’s everything else but pretty: Eight of the world’s ten largest DRAM suppliers have seen double-digit declines in sales. Market leader Samsung saw its DRAM revenues retreat by more than $1 billion.

We have seen reports about the dramatic price erosion in the DRAM segment for most of 2007 and it appears that the cut-throat competition over market shares has seen yet another peak in the fourth quarter. Q4 2007 Revenues of the top-10 of the market declined by 40% over Q4 2006, prompting iSuppli to describe the current market environment as "miserable".

Q4 sales of the ten largest suppliers are estimated at about $6.45 billion, down from $10.7 billion last year. The ranking still lists Samsung on top, but the company’s sales declined by about 36% to $1.9 billion. Hynix (-41%, down to $1.2 billion) follows in second, and Elpida (-31%, 830 million) in third. Qimonda lost 50% to $744 million and dropped to position four. Micron was teh best performer among the top 5 and was hit "only" with a 28% decline to $739 million.

The only two companies with increasing revenues were Etron (#9), which saw an 8% climb to $103 million and Elite (#10), which is estimated at $49 million (+40%). However, all ten companies saw their revenues decline sequentially.

iSuppli believes that the drop in market revenue resulted in an industry-wide operating loss of nearly $3 billion in the fourth quarter. "There’s a lesson to be learned from the fourth-quarter DRAM disaster: In this game of upping the production ante, no supplier wins - and the entire industry loses," said Nam Hyung Kim, director and chief analyst, memory ICs/storage systems for iSuppli. "Tier-one DRAM makers can generate profits more than the industry average when the industry is healthy-and only when supply and demand are in a reasonable state of balance. Rather than pursuing a scorched-earth policy of ramping up production to gain market share, tier-one DRAM suppliers should try to return to profitability by rationalizing supply growth."

iSuppli said that top-tier DRAM suppliers engaged in massive capital spending programs in 2007, in an effort to corner cornering the market and driving smaller competitors out of the industry, Kim said. However, even if this strategy succeeds, it will yield only short-term benefits, he believes. "When profitability returns to the market, new competitors will come flooding in again. Until the suppliers change their ways, this naive game of scale will continue to cost the DRAM industry every year," Kim said.