Cost of manufacturing DRAM grows

The cost of manufacturing DRAM increased for the first time in nearly four years in the second quarter according to research by iSuppli.

The average production cost for DRAM rose to $2.03 per gigabit at the second quarter of 2010, up from $2.00 in the first quarter. While the increase represents a small 1.2 percent rise, it signified a major departure from the historical trend, which has seen manufacturing costs decline by an average of 9.2 percent every quarter since the beginning of 2005.

It said the last time DRAM production costs climbed on a sequential basis was in the third quarter of 2006.

According to iSuppli, the rising production expense in the second quarter stems from costs during this period declining by less than the average during the previous nine months. This was a period that saw an average decline of just 1.7 percent per quarter since the third quarter of 2009.

The trend abruptly reversed course in the recently ended quarter compared to the previous two quarters when costs fell by a little more than 3 percent during each period. iSuppli used the first quarter of 2010 as the starting point, saying that if costs had followed their downward spiral in relation to historical trends, then costs in the second quarter should have been 21 percent lower than they actually were.

It concluded that DRAM manufacturing costs had not declined at normal rates in nine months, and there is a concern that cost reductions had been limited during the last three consecutive quarters.

“The rise in DRAM production costs during the second quarter could be traced to the actions of two big players in the field: Japan’s Elpida Memory Inc.— the world’s third largest supplier—and Taiwan-based Nanya Technology Corp., ranked No. 5,” said Mike Howard, senior analyst for DRAM at iSuppli. Nanya saw its cost climb 4 percent, while the expense for Elpida ballooned by 11 percent.”

For its part, Nanya could attribute its current higher costs to difficulties in migrating from an older trench technology to the newer stacked process. Yields have been hurt during this migration, and as a result, cost per bit in production has increased.

iSuppli said that Elpida, on the other hand, could put down its present woes to a change in cost structure after the company increased manufacturing outsourcing to other firms. Elpida in the second quarter purchased DRAM directly from Taiwanese partners at a higher cost than if it had made the product on its own.

But the outlook is bright for Elpida, which like Nanya,will see costs decline going forward as the company sorts out its cost structure.