Goldman says sell chipmakers

Profits at Taiwanese memory chipmakers are set to plummet after the fourth quarter as demand for personal computers wanes, a Goldman Sachs Group Inc analyst said yesterday.

Jonathan Ross, an analyst at Goldman Sachs, advises investors to sell Mosel Vitelic Inc (茂矽電子), Nanya Technology Corp (南亞科技) and Powerchip Semiconductor Corp (力晶半導體) shares because he feels that these firms will be hard-pressed to secure higher contract prices for their memory chips even though the spot price recently soared. He says demand for computers -- where the bulk of memory chips go -- will peter out after the fourth business quarter. Since Oct. 8, shares in Mosel have gained 37 percent, Nanya 99 percent and Powerchip 51 percent.

"Negotiations are proving tougher and more drawn out, which indicates memory chip buyers aren't desperate," said Ross, who is head of technology research for Goldman Sachs.

Ross predicts the spot price for the 128-megabit dynamic random access memory chip, which jumped by half in the past six weeks according to DRAM Exchange, will rise less than 5 percent next month before sliding in January.

Chip prices, which are still down about 70 percent this year, typically peak at year-end during the holiday sales season and decline in the first half of the following year.

The contract price for 128-megabit dynamic random access memory chips (DRAM), is between US$1.30 and US$1.50 per chip, largely unchanged from June and as much as a fifth less than the current spot price, Goldman said.

Worldwide DRAM sales appear set to shrink by two-thirds this year as the global economy slows and consumer confidence has yet to recover after the Sept. 11 terrorist attacks, according to Dataquest Inc.

Not all investors agree. They say industry leaders will attempt to preserve the gains made in spot prices by limiting supply. Simon Chao, who manages NT$800 million (US$23 million) in Taiwan stocks at President Investment Trust Corp (統一投信) in Taipei, expects Korea's Samsung Electronics Co, the world's largest memory chipmaker, and Micron Technology Inc, the US' No. 1 memory chipmaker, to cut production in order to boost prices.

He predicts the 128-megabit DRAM price to rally 22 percent to US$2 over the next "two to three months" and has bought shares in Nanya, Pro Mos Technology Inc (茂德科技) and Winbond Electronics Inc (華邦電子) He plans to buy more if the stocks fall.

South Korea's Hynix Semiconductor Inc also plays a vital role in what happens in the market. The DRAM chipmaker has burned through billions of dollars in loans this year, securing another US$9 billion rescue package this month.

The deal includes US$500 million in new loans, US$3 billion in debt-to-equity conversion and the rollover of US$5.5 billion in other loans. Hynix has an estimated 8.6 trillion won (US$67 billion) in debt, and has been trying to sell assets to raise cash and repay creditors.

Memory chipmakers in Taiwan themselves are hardly bullish. Arthur Chiao (焦佑鈞), chairman of Winbond, Taiwan's biggest memory chipmaker, earlier this month said a recovery in DRAM chip prices in the fourth quarter was "unlikely" because the personal computer market is "weak."