Should DRAM makers gird their fiscal loins ready for a rough ride in 2016?

Will market and political pressures spell New Year misery for the memory makers? The straight forward answer is yes and whereas extreme market fluctuations in the DRAM market are nothing new there is now the added dimension of political pressures in the form of what countries like China are planning in order to grab their slice of the memory chip pie.

All this comes after a period of lucrative trading for the memory makers which will continue briefly into 2016 but the financial storm clouds are gathering.

Analysts Gartner are quite clear about what's in store for the DRAM makers. They say that DRAM oversupply will hit 2016 resulting in a 13.6% worldwide slump in memory spending.

Pricing on memory devices has been pretty steady for at least a couple of years thanks to buoyant tablet and smart phone markets which have to all intents and purposes neutralised the effect of the failing PC market.

There is no doubt that 2015 has been a happy year for all those semiconductor company bean counters with revenues hitting a high of close on $340billion. And a sizeable chunk of that considerable sum has been generated by DRAM sales in 2015 that hit close on $44billion.

But memory prices are historically known to be an erratic roller coaster ride at best and when they hit a severe slump cause a substantial drop in revenue for the semiconductor market as a whole.

This DRAM volatility is pretty much caused by the manufacturers themselves and the strategies they employ to meet increased demand during robust trading periods. The memory makers typically ramp-up production which eventually encourages a situation of over-supply which predictably causes prices to plummet resulting in dwindling revenues much to the distress of the corporate bean counters.

America's maker of DRAMS, Micron, finds itself right in the middle of these revenue roller coaster rides and has in recent times seen its stock price collapse by close to 50%, a situation driven by oversupply and price competitiveness in the memory sector. In the past this chipmaker has astutely bolstered its financial position and production capability by buying other companies that have decided to quit the memory business.

One example involved a Taiwanese-based company called Inotera. Seven years ago Micron purchased a share in the company and now buys all of Inotera's memory device production. This is a considerable amount of product. Inotera has two fabrication facilities which between them turn out 130,000 wafers a month which equates to about 9.2% of the global production in 300mm capacity.

However, this arrangement between the two companies will undoubtedly have resulted in a downward pressure on what Inotera can charge Micron for its DRAMs. It is perfectly understandable that neither organisation want this situation to create a deterioration in their working relationship because of not only the already existing extreme competitiveness that exists in the DRAM market, and not only the inevitable downturn predicted in 2016 but also because of the threat of what China may be poised to unleash on the worldwide memory market.

It is no secret that China is rapidly advancing its semiconductor design and manufacturing capabilities and a key element in that overall strategy involves DRAM.

And you can see why China is moving ahead with its memory manufacturing plans. It's not only eyeing up the international demand for chips but its domestic market in China is the largest and fastest growing semiconductor market in the world, representing around 50% of the $336billion global market in 2014.

China’s market is forecast to grow 11% in 2016.

With this as a backdrop it's easy to understand why Micron eventually decided to take over the whole of Inotera. By doing so it stopped the Chinese gaining a share or possibly all of the company. So in one respect this will protect the US DRAM maker against political perils whilst securing its supply of production at whatever pricing it thinks is appropriate for market conditions. Its only concern now must be what exactly does 2016 hold in store for the semiconductor market.

But on a brighter note it's not all bad news for the international electronics market next year.

In 2016, automobile shipments worldwide are expected to show a steady and sustainable growth of 5% throughout the year and the average cost per vehicle of analog IC components is predicted to rise.

Consequently, the share of automotive applications in the overall analog IC market will grow from the estimated 28% in 2015 to a predicted 30% in 2016. The automotive applications will also drive overall analog chip sales, which will grow 3.8% year on year in 2016.

Add to that the continued development and adaptation of burgeoning technologies like neuromorphic chips and space-age applications like screen less displays, driverless cars and breakthrough chip technologies and 2016 could easily be a very prosperous New Year.

Electroblog wishes its readers a very happy Christmas and a prosperous and healthy New Year.