ICinsights: DRAM capital expenditures will drop 28% this year

According to ICinsights, a well-known analysis agency, an important question facing the IC industry in the second half of 2019 is when the DRAM market will rebound. Any rebound in the market will be driven in part by available manufacturing capacity. ICinsights further pointed out that after the huge DRAM capital expenditures in 2017 and 2018, how much new capacity will actually come online, and how much will DRAM prices (price per bit) drop because of the emergence of these capacities?

ICinsights said that the three major DRAM suppliers - Samsung, SK Hynix and Micron generally believe that DRAM production will increase by about 20% per year in the next few years. Figure 1 shows Micron's view on the capital expenditure required to increase DRAM bit shipments each year (data from Micron's 2018 analyst and investor event) compared with IC Insights' DRAM capital expenditure historical and forecast data.

As new and very complex DRAM technologies require more fab equipment and more fab space to house that equipment, Micron estimates that industry capital expenditures required to increase DRAM capacity by 20% will increase from $8 billion in 2015 to $18 billion in 2018! Actual DRAM spending in 2016 was slightly less than what would be needed to increase bit rates by 20%, which is comparable to demand in 2017.

However, in 2018, capital expenditures in the DRAM market reached $23.7 billion, 32% higher than the $18 billion needed to increase DRAM capacity by 20%. It is worth noting that in 2018, DRAM bit counts only grew by 13%, while it is expected to grow by 17% in 2019.

Too much capital spending typically leads to overcapacity and subsequent price weakness, which is amplified by a weak economy and soft end-user demand. With Samsung, SK Hynix, and Micron aggressively investing in upgrading/adding DRAM capacity last year, and economic and trade uncertainties continuing to permeate the global market, IC Insights believes the risk of DRAM overcapacity and subsequent price weakness will continue to manifest itself in the second half of 2019.

IC Insights expects actual DRAM capital expenditures in 2019 to be lower than what is needed to sustain 20% volume growth. This could offset the overspending in 2018 and help return DRAM market supply and demand to balance beginning in 2020.