Elpida’s somewhat unsurprising bankruptcy will solidly kick up prices in the shaky DRAM industry, as competitors are forced to up their average selling prices.
Elpida committed sudden seppuku earlier this week. The Japanese company was known to be in trouble, with over $1 billion debt payments piled up in the company’s inbox. Still, Elpida is considering soldiering on, and manufacturing might continue. Its facilities have not cut their output yet.
Mike Howard, senior principal analyst at IHS, said that it’s unlikely all of Elpida’s production will disappear, however, the developments “could mark a new era for the DRAM market – one marked by stronger pricing power for suppliers.”
If, says analyst group IHS iSuppli, over a quarter of Elpida’s capacity is killed, average selling prices for all DRAM shipments should reach as high as $1.21 by the year’s end – an increase of 15.5 percent compared to $1.05 in the first half of the year. Without reducing capacity, prices will still rise, but a paltry 8.5 percent up to $1.13 by the end of 2012.
Overcapacity worries markets, but so, too, does undersupply – and this is looming on the horizon if Elpida’s capacity goes offline. Shipments will decrease, but the remaining rivals will put up their prices which will, in turn, boost revenues.
Elpida’s manufacturing assets have not been carved up yet, and the debate is still out on what’s to be done. While the board will no doubt mourn the loss-making, Tokyo subsidised DRAM maker, competitors will enjoy what IHS calls a “much rosier” 2012 than the situation was as recently as a week ago.
According to cautious IHS estimates, Elpida popping its clogs could lead to overall revenues for the DRAM market over $30 billion for the full year. Compared to its previous forecast of $24 billion, you’d be hard pressed to find many mourning Elpida’s passing.
Existing Elpida customers are expected to embark on a frenzied DRAM land-grab as they search for alternative sources. Samsung, Hynix, Micron and Nanya will be particularly enthused as they pick at the bones of Elpida’s clients.