Consistently tough pricing in DRAMs and on-again off-again tough pricing in NAND Flash throughout 2007 resulted in a dramatic reversal of fortunes for memory makers in 2007. Almost from the start of 2007, prices dropped precipitously, steadying DRAMs in 2Q but a rebound for NAND Flash. The summer was all-around better, but in the fall, price pressures resumed for both DRAMs and NAND Flash, and remain below production costs (DRAMs) or close to it for NAND Flash midway through 1Q08.

The overall memory market stayed about the same size from 2006 to 2007: $58B, +/- depending on who is counting and what is counted. DRAMs were down a bit to $31B, and NAND Flash went up a few $B, to nearly $15B. But the $58B in 2006 had nearly $9B in profit in it for memory makers; in 2007, vendors lost more than $2B, a large portion of which was in 4Q07. And, with prices at their annual lows on 31 December 2007, this sets the stage for another tough year in 2008.

For several companies, so severe was DRAM price pressures, that 4Q07 losses were equal to more than half their 4Q revenues. Major Taiwanese DRAM makers (i.e., Nanya, ProMOS, Powerchip), ...plus Qimonda, the only other pure DRAM supplier, all lost money in 2007, and it is probably safe to say that all DRAM product lines lost money, even though the product line was not singled out for broadline suppliers.

Losses were exacerbated by settlement of long-standing stock options, which gave a dose of losses to Rambus, Atmel, and SST, as well a frequent housecleaning of overdue charges for write-downs of inventory and for 'asset impairment' - equipment that had not been depreciated enough in past quarters, to align the financial statements with today's realities of how much the equipment was actually worth.

Without exceptional DRAM bit growth (which came in at more than 90% and the largest in more than a decade), and without the very impressive cost reductions by DRAM makers (mostly more than30-35% over the year, and as much as 15-20% in 4Q alone), it would have been much worse. The flagship 512M DDR2-667 opened at more than $6.00 and left the year at about 80 cents; with the rise of 70-75nm processing, the market shifted strongly from 512M to 1G for DRAMs, contributing both to cost reductions and to supply growth. Shipments of 1Gb DRAMs in January were fewer than 7M units, but by December had risen to more than 180M per month. 512M, which grew wildly to a record of more than 8B units, were higher than any density of DRAM in a single year - ever! This high peak shipment, which was undoubtedly aided by both strong demand growth and the industry's difficulty getting past 90-85nm processes, really gained momentum as 2Q moved into 3Q as 70nm processes and 1Gb production, really moved into high gear... and continues today.

As we enter 2008, Saifun's sale to Spansion is approved and done; the Numonyx JV between Intel and ST for NOR flash is wrapping up details and will be completed by the end of 1Q08. GSI, now a leading SRAM maker in a market many have walked away from, is now listed in our summary table. Both ST and Intel will continue to have an interest in NAND Flash ventures: ST with Hynix, and Intel as a part of IMFT, with Micron Technology.

End demand is strong, but productivity improvement and the specter of a housing-led recession remain major concerns. DRAM makers have cut back on their CapEx for 2008 to try to stabilize prices and head off an even deeper and longer glut; few expect DRAM GB growth to be as strong as 2007's was, but we thought the same thing last year, too, and got a major upside surprise. In fact, PC sales are strong, prices for memory are low, price elasticity is real, and no one knows with any certainty if 2008's DRAM business will be strong, weak or middling. Many companies are saying 2H08 will be a tight DRAM market, but who knows.

NAND Flash is estimated to be facing 130-165% GB growth in 2008. Investment is unabated.

Here is the Table of Financial results, (see below) comparing 2007 with 2006 for most major memory makers who report individual company or divisional data. We expect to publish more discussion about the 2007 memory market in the next few weeks, looking at cost reduction strategies and successes, DRAM product portfolio strategies, technical line-ups for major vendors in NAND Flash and DRAMs, and more insights (we hope) on what to expect for 2008.

"Others" include Sony, Matsushiuta, Renesas, Toshiba, Fujitsu, NEC, Elite Semi., G-Link, Alliance Semi., Sharp
'Profits' are divisional operating profits for Samsung, STMicro, Intel; profits are after-tax profits for remainder of companies
(ST & Intel will formally launch their NOR flash JV at the end of 1Q08; each will still have NAND business unit ST + Hynix, & Intel + Micron (IMFT)
msystems will be shown combined with Sandisk in 2008

Cypress is now more "Sunpower" = solar cells, than a Semiconductor company, and semi's will be listed separately after 4Q07
Saifun will continue to report separately until acquisition by Spansion is closed, probably early 2008
Mosys, Sandisk, SST, Saifun and Rambus include substantial IP licensing revenues as percentages of sales;
Exchange rates for 4Q07:107Y/$, 942W/$, 0.692 Euro/$, and 32 NT$/US$ for 4Q07