Memory chip prices still falling

A week after the Asian Wall Street Journal quoted the president of Mosel Vitelic Inc (茂矽), one of Taiwan's top DRAM microchip makers, as saying that "nobody is making money" in DRAM at current market prices, the price of these computer memory chips fell to new lows yesterday. Taiwan is a major player in the US$29 billion world market for DRAM.

The spot price for industry standard 64-megabit dynamic random access memory (DRAM) chips hit a new low of US$2.05 per chip yesterday, down from a high of nearly US$9 last July. The price of 128M DRAM also dropped to US$4.05, from US$20 last summer.

"When the price of 128M DRAM falls below US$5 per unit, that's when we start to feel the heat," said Mike Liu (劉重光), spokesman for Winbond Electronics Corp (華邦).

DRAM accounts for about 50 percent of Winbond's revenue, while the remaining portion comes from businesses including core logic and the flash memory used in cellular phones.

Usually the company can count on prices about US$1 higher than the spot market price. Over 70 percent of Winbond's DRAM production is sold at contract prices, based on agreements with foreign buyers like Toshiba.

The typical price-haven for local firms are the contract prices made with foreign buyers. But many buyers, like Toshiba, will use their own chip-making capacity in the event of a downturn. Toshiba, in fact, expanded its DRAM making capacity dramatically last year in response to amazing growth in the PC market throughout the first half of the year, and some analysts expect the company to lower contract orders to Winbond this year -- especially if computer sales fail to pick up.

The falling price of DRAM chips has already hit the company's bottom line. During August last year -- the height of good times for the DRAM industry -- Winbond reported record monthly sales revenue of NT$5.58 billion. This year, January sales brought less than half that figure -- only NT$2.43 billion.

Although the first quarter of any year is generally the slowest for computer sales, few signs are giving analysts reason to be optimistic about an upturn in the market. Typical movers of the industry, such as faster processors by Intel or the release of popular new software programs that need more computing power simply are not increasing PC sales.

Even Microsoft's latest Windows product has been called a "nice program" but not a "must have" by analysts -- and it does not require a migration to a computer with the latest Intel Pentium IV chips for top performance.

Worse, the glut of 64M DRAM is being compounded by a growing over-supply of 128M DRAM chips.

"We've switched our production over to 128M DRAM," said Monica Chao (趙佑平), spokeswoman for Mosel Vitelic, echoing the strategy of most Taiwanese DRAM makers these days.

With the price of 64M DRAM chips close to or below the cost of production -- analysts say US$3 is the cost of production -- producing 128M DRAM is an alternative. Trouble is, it's one alternative everyone has turned to and 128M DRAM prices are falling as fast as 64M. And if the price of both 64M and 128M chips continue their five-month slide, analysts say DRAM makers here will be in a fight for survival.