Blame Elpida, Nanya for higher DRAM mfg costs in Q2

El Segundo, Calif. — The average production cost for DRAM increased to $2.03 per gigabit in the second quarter of 2010, up from $2.00 in the first quarter, according to the latest memory pricing and forecast report from iSuppli Corp.

While the increase represents only a 1.2 percent hike, it marks a significant change from the historical trend, which has seen manufacturing costs decline by an average of 9.2 percent every quarter since the beginning of 2005, said iSuppli. The last time DRAM production costs climbed on a sequential basis was in the third quarter of 2006, according to the market research firm.

The report, “DRAM Manufacturing Costs Increase in Second Quarter,” reveals that if costs had followed their downward trajectory according to historical trends, then costs should have been 21 percent lower than they actually were in the second quarter, using the first quarter of 2010 as the starting point.


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

“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, in a statement. “Nanya saw its cost climb 4 percent, while the expense for Elpida ballooned by 11 percent,” he added.

Howard said Nanya can attribute its current higher costs to difficulties in migrating from an older trench technology to the newer stacked process, which caused yield problems. However, iSuppli expects costs to decline significantly in the upcoming quarter once Nanya resolves its yield issues.

Elpida’s cost issue is related to a change in cost structure after the company increased manufacturing outsourcing to other firms, according to iSuppli. Elpida purchased DRAM directly from Taiwanese partners at a higher cost than it would have cost to manufacture the product on its own in the second quarter, but iSuppli says Elpida had no choice due to capacity constraints.

iSuppli also expects Elpida’s costs to decline going forward as the company sorts out its cost structure.

And once the industry makes other necessary adjustments, especially those related to mastering lessons in semiconductor immersion lithography, which are needed during migration changes, production costs should start to decline, falling in line with the long-term average, said iSuppli.