LONDON — Samsung's lead in DRAMs has fallen to a seven year low according to market research group Gartner Dataquest, and the South Korean giant has responded by expanding production of the memories by nearly 100 percent this year . This, Gartner Research Vice President for semiconductors, Andrew Norwood warns, is threatening the industry with a year long oversupply.

Preliminary 1Q 2007 DRAM revenue forecasts by Gartner indicate that Samsung’s share of the market dropped to 25.5 percent, just 2.7 percent above its nearest rival Hynix. This is Samsung's smallest lead in the DRAM market since 2000 when it was Micron who was challenging the leader. Over the last five years Samsung has enjoyed on average a 13 percent lead over their nearest rivals.

Norwood suggests Samsung is scared that Hynix will take the top position, which is why it is pushing ahead with a huge DRAM bit growth target this year, despite the fact that the market research group expects that NAND flash is going to be more profitable in the second half of 2007. Yet Samsung appears not to have any plans to convert DRAM capacity to NAND.

"So, it looks like the DRAM industry is returning to a classic market share battle with little regard for profitability - and all vendors are going to suffer. Business as normal in the DRAM market," says Norwood.

Samsung saw DRAM revenue decline by 22.3 percent in 1Q07, to $2,450 million, compared with the last quarter of 2006 ($3,155 million). The overall decline in DRAM sales between the two quarters was a massive 11.6 percent , according to Gartner.

The total market was $9,591 million, compared to $10,845 million in Q4 2006.

The big surprise, according to Gartner, was Hynix who was able to increase revenues by 6 percent to $2,182 million, due to massive bit growth of 45 percent quarter over quarter. This was due to the continued ramp of its new 300mm fabs combined with a shift of some capacity from NAND to DRAM along with increasing percentage of 80nm production.

In fact, Hynix overtook Samsung in terms of bit shipments in 1Q07 and unless Samsung achieves substantial bit growth in coming quarters there is a possibility that Hynix would strengthen its megabyte lead and claim the revenue crown as well, suggests Norwood.

However, Hynix saw strong ASP decline of 27 percent in the quarter. Gartner says similar declines affected other vendors as well due to the oversupply conditions.