Toshiba Latest Casualty of DRAM Price Wars

Tsar writes: "ITWorld.com tells the story: Toshiba is getting out of the DRAM business. They had 6.2% of the world market last year, but soon their Manassas, VA facilities will belong to Micron, the Yokkaichi plant's DRAM production will be reduced to a trickle, and Toshiba will be out of the commodity memory market. Guess you can sell DRAM for a hundred bucks a gigabyte, but you can't make a living at it yet."

Comments

Re:DRAM Schme-RAM

[adubey]

CaptainAlbert,

I'm having a hard time understanding what you've written! You're saying that the DRAM market is hard to understand because once you have it, you don't want it anymore? But isn't this true of most goods? Also, the "wearing out" bit doesn't make any sense: I have a Maytag washing machine that hasn't worn out since the days when DECs had 64K of memory. This doesn't make the market for washing machines any harder to understand.

How does having a huge domestic market imply you'll be in constant over-supply?

Rather than some pseudo-economic reasons as to why the DRAM market is bottoming out, how about some real ones. First it is a commodity, so there is no chance of making an "economic profit" on DRAM. Second, the main market for DRAM, personal computers, it itself declining, causing a decline in the DRAM market. Third, better technology has made DRAM cheaper and cheaper. While in the early days of computing, the declining cost of RAM was matched by increasing volumes (ie every computer coming with more RAM). Recently, however, the cost to produce a megabyte has been decreasing faster than the avg. megabyte/computer has been increasing.

what a load of CRAP!

[standards]

"DRAM Manufactureres are losing money on every chip they sell".

Well THAT'S a load of bullshit. Then why are they selling?

"We'll sell you a million of them. That'll cost us a $1,000,000, but let's do it anyway."

It's NOT true.

Chip manufacturers MAKE money each time they sell a chip. And if they sold enough chips, they'd walk away with a tidy profit. And - SURPRISE - they do!

The problem is that they've expended lots of money building new fabrication facilities, and then, whoops!, the PC economy takes a hit. It isn't that DRAM prices got more expensive - it's that they over-invested in fabrication. And let me tell you - the plants themselves aren't the most expensive part - it's the people and managers that run them.

What's the answer? To sell off the facilities to those who won't be competitors. Heck, why sell something good to a competetor? Therefore, the entry into "vertical markets" by the likes of Toshiba, selling off the facilities to Micron. As long as there is no competition between partners, they're happy.

So what does this mean to DRAM prices? They might fluctuate a little, but the trend will continue downwards as real manufacturing costs are lowered and the technology improves.

Don't despair--just read carefully

[John Murdoch]

Hi!

A key reason behind Toshiba's decision to exit commodity DRAM production is a long slide in DRAM prices that began in the summer of 2000, which has pushed prices to below-cost levels leaving Toshiba, and almost all DRAM makers, losing money on every chip they sell. [Emphasis mine]

In other words, there is a price war going on. And, if ITWorld's sources are correct, there is at least one producer who is making money manufacturing DRAM at these prices. Given that Micron is buying the DRAM plant (and running TV ads selling DRAM via Crucial), it seems clear that Micron a) thinks they can make money in the DRAM business, and b) thinks that they can use that plant in Virginia to make DRAM more competitively than Toshiba did.

Two points:

1. This suggests strongly that we won't see a DRAM price rise anytime soon. Several posts on this topic have pointed out that when you see market players exiting, supply tightens up and prices rise--but in this case supply isn't going to decrease, only the brand names will change.
2. This is also extremely interesting to those of us who heard of the "vaunted Japanese electronics industry" throughout the '80s and '90s. The dominance of the DRAM market by Toshiba and NEC was so overwhelming that Peters and Waterman bent over backwards to chronicle the contrarian investments of an Idaho potato farmer named J.R. Simplot. Simplot, who more-or-less invented the frozen french fry, was watching TI and Motorola bail from the commodity DRAM market, and plowing his millions into a plucky upstart...by the name of Micron. 12 or 13 years after In Search of Excellence featured Micron in a clearly David-vs-Goliath-and-we're-not-betting-on-David tone, it would seem that an American company has beaten the Japanese electronics industry at their own game, driving them from the marketplace. That is an interesting story.