Is the memory market the madhouse that it appears?

Whoever wrote them came up with some cracking lines. One that applies to the electronics industry is from King Lear: 'that way madness lies'. The 'madness' in this case is the dram sector. But, while Lear continues by saying 'let me shun that; no more of that', those with an eye on the dram market carry on regardless. It's amazing how many companies and executives have discovered the dram business is, indeed, where madness lies – or appears to lie. On the face of it, dram should be an 'easy' sector to compete in. Yet, in another example of the industry's ability to shoot itself in the foot; dram turned into something of a nightmare. Oversupply saw prices crash and dram manufacturers sold parts for less than it cost to make them. Drastic measures were called for. In the early 2000s, five leading dram manufacturers were found guilty of price fixing. Of those, Infineon was fined $165million and Hynix had to pay $185m. Since then, Infineon divested its dram interest into Qimonda, which went bust; Elpida, another of price fixers, has recently gone under. On the fact of it, dram isn't where you'd invest from choice. So why is Micron paying $2.5billion for Elpida, a bankrupt dram manufacturer, when it's already a leading company in the sector? There's a good reason – the dram market is huge, driven by demand from pcs, notebooks, tablets and smartphones. Market analyst IHS iSuppli believes demand in 2012 will reach 1billion gigabit, growing to 3.5bn gigabit in 2014. Even with thin margins, those companies with the scale will be able to address the dram market profitably. On that basis, dram doesn't look quite such a mad business.