Dark clouds hanging over the DRAM industry aren't likely to clear up until late in the first half of next year, analysts forecast.
Computer makers are still working off stores of memory chips stockpiled earlier this year for a drought that never materialized. In addition, demand for PCs has been weak, and a slowdown in global economic growth will likely keep sales subdued.
Those two factors together spell trouble for the DRAM industry's leading weather barometer. At US$3.39, the spot price for 64-megabit 8x8 DRAM has fallen 64 percent since January.
Analysts don't expect a rebound anytime soon.
"If we're talking about a rally, I believe it will happen in the second half of next year," said Andrew Teng, an analyst at Taiwan International Securities.
The weather could get worse before it gets better. Jovi Chen, who covers semiconductor companies for China Securities, says memory chip spot prices could sink as low as US$2.50.
Should prices drop that far, many of Taiwan's second-tier DRAM makers would be forced to temporarily cut back output or halt production.
At US$2.50, companies such as Nan Ya Technology (
But there is a silver lining. As second-tier companies take shelter from the storm, "that will hold back supply and give prices a chance to go back up," Chen said.
For now, a price of just under US$4 allows a majority of Taiwan's DRAM manufacturers to keep their heads above water. "At this level, most companies are at their break-even point," Chen said.
False forecast
The outlook for the DRAM industry wasn't always expected to be this gloomy. Earlier this year, industry watchers forecast a tightening in DRAM supply for the fourth quarter, with spot prices as high as US$10.
But as a result, computer makers took precautions, stockpiling enough provisions to see them through the expected drought.
"You had every Tom, Dick and Harry preparing for a shortage," said Dan Heyler, semiconductor analyst at Merrill Lynch.
In addition, Heyler said, to save money, PC makers reconfigured their products to use less bits of memory. That also crimped DRAM demand.
Now that spot prices have fallen to never-imagined lows, so too have the shares of DRAM makers, as one after another reports lower-than-expected monthly sales.
Winbond (華邦電子) is down 71.6 percent off its 52-week high, closing at NT$29.50 on Saturday. Nan Ya is off 71.6 percent at NT$21.70, Powerchip off 72.7 percent at NT$19.50, Vanguard off 71.6 percent at NT$17.60 and ProMOS (茂德科技) off 75.8 percent at NT$28.80.
In Winbond's case, the surprising turn of events has forced the company to scale back its capacity expansion plans. Winbond said last week that it would only start construction of one 12-inch wafer fab next year instead of two.
Rays of hope
Despite the poor outlook, there are some rays of hope, analysts say.
"DDR is one avenue out for DRAM makers," Teng said, referring to the new technology standard that is expected to boost the performance of memory chips.
"Most people already know that DRAM prices won't be good," Teng said, so they'll be shifting to products that "deliver a higher premium."
DDR is one of those products, as "the consensus is that production costs for DDR will be about the same as standard DRAM."
"Also, we're looking at Microsoft Windows 2000. If that product is successful, we think that will help stimulate demand," Teng said.
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