DRAM Price War Coming

As Taiwan's manufacturing capacity grows, memory will get cheaper.

Mark LaPedus

Asian companies have dominated the DRAM market for more than a decade. Japan took the market lead in the mid to late 1980s, but South Korean companies have gained the upper hand over the last three years. Now, Taiwan is emerging as a new DRAM power in Asia.

There are between 15 and 20 wafer fabrication facilities on the drawing board or being built in Taiwan, many of which are DRAM factories or foundries (fabrication plants that manufacture chips for other IC companies). Because the cost of building a fabrication facility is more than $1 billion today, Taiwan is betting that the IC business--especially memory chips--will remain robust.

Several Taiwan suppliers will intensify the price wars in the DRAM market when they ship their first 16-Mbit parts during the second half of this year. Nan Ya Technology, Powerchip, United Microelectronics Corp. (UMC), and Vanguard are all readying their initial 16-Mbit parts.

Taiwan vendors will go toe-to-toe against established DRAM suppliers based on one factor: price. "Taiwan's DRAM manufacturers will play the role of a price killer in the market," says John Kuo, analyst with China Securities Investment Trust Corp. (Taipei). "When Taiwan DRAM makers ramp up production by the fourth quarter of this year or early next year, there will be another price war in the market."

Taiwan's entry into the DRAM market follows a steep drop in product prices over the last six months. A 1 x 16-Mbit DRAM on the spot market sold for about $54 late last year, but prices tumbled to $42 by the beginning of this year. A slowdown in the PC market caused 16-Mbit prices to drop to around $23 by the end of the first quarter of 1996. By the second quarter, the average price fell to about $13. Prices could stabilize or drop even further in Q4.

That's not stopping Taiwan, however. Vanguard and UMC have been shipping in quantities their respective 1 x 16-Mbit extended data out (EDO) DRAMs. Nan Ya Technology and Powerchip began sampling their 16-Mbit parts last June and July, respectively. Nan Ya Technology will sell 4 x 4-Mbit EDO DRAMs, while Powerchip will begin shipping 2 x 8-Mbit EDO DRAMs. Other Taiwan hopefuls will show 16-Mbit DRAMs later this year or early next year, including Mosel-Vitelic and Winbond Electronics.

The 1 x 16-Mbit DRAM, targeted for PCs, is currently the most popular configuration, while the 4 x 4-Mbit version is designed for high-end workstations and servers, says Pei-Lin Pai, director of marketing for Vanguard. The 2 x 8-Mbit DRAMs are also targeted for PCs, but the volumes are much lower than the 1 x 16-Mbit varieties, he adds.

Taiwan IC companies have been successful in PC chip sets, SRAMs, VGA controllers, and flash memories. But Taiwan has failed in some cutting-edge businesses: UMC, for example, attempted to sell a 486 processor but exited that highly competitive market last year.

Taiwan has a lot to prove in the DRAM business. Local companies are much smaller than the memory giants in Japan and South Korea. For example, South Korea's Samsung, the world's largest DRAM maker with about 14.8 percent market share in 1995, had total chip sales of over $10 billion last year--an amount larger than Taiwan's entire IC output. Most Taiwanese DRAM hopefuls will be able to survive just by selling into the local PC and motherboard industries. In fact, local OEMs must import more than 80 percent of their components, including DRAMs, from foreign suppliers.

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Taiwan Bets Big on ICs

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Taiwan's total PC industry in terms of annual sales (in U.S. dollars).

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DRAM Prices Headed Down

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Taiwan's chip production will drive memory prices down.