Insolvency of Elpida May Boost Memory Pricing and Help the Industry

From X-bit Labs: Elpida Memory’s move to file bankruptcy protection this week will benefit the remaining players in the dynamic random access memory (DRAM) market, reducing supply and boosting pricing and revenue in the second half of the year, according to the IHS iSuppli analyst firm.

“A meaningful reduction in Elpida’s manufacturing will cause the DRAM market to go into a state of undersupply, causing prices to increase,” said Mike Howard, senior principal analyst for DRAM and memory at IHS.

If more than 25% of Elpida’s manufacturing capacity is taken offline, the global average selling price (ASP) for all DRAM shipments is projected to rise to $1.21 by the end of 2012, up 15.5% from $1.05 at the end of the first half of the year, as presented in the figure below. Without such a reduction in capacity, pricing would rise to $1.13 at the end of the year, up just 8.5% from the price at the end of the first half.

“Shipments likely will decrease because of the Elpida bankruptcy, even though the resulting increase in revenue—driven by higher prices—will cause the market to perform better than expected in 2012. The ultimate fate of Elpida’s manufacturing assets, which remains to be decided, will be the major factor impacting pricing and revenue growth in 2012. But one thing is certain: Elpida’s bankruptcy means the remaining DRAM players can look forward to a much rosier 2012 than they did just one week ago.”

IHS conservatively estimates that 2012 DRAM revenue will exceed $30 billion, compared to the previous forecast of $24 billion. In a preview of what is likely to happen in contract prices later this year, the spot memory market reacted drastically to the news of Elpida’s bankruptcy. Spot prices for PC DRAM jumped by more than 15% in just one day.

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