Seasonal surge in demand boosts memory chip prices

Shares of computer memory chipmakers are expected to build on last week's strong performance as computer vendors boost inventories ahead of back-to-school purchases by end users, analysts said yesterday.

"We believe DRAM [dynamic random access memory] stocks will experience another upswing this week in line with a jump in chip prices," said Jeff Chang (張明輔), an analyst with Grand Cathay Securities Corp (大華證券).

"Active purchasing of memory chips from computer brands such as Dell Inc has pushed up spot prices on such chips."

On the spot market, the price of mainstream 256Mb/DDR400 DRAM chips has bounced back by nearly 8 percent to US$4.5 per unit over the last week, according to online price adjuster DRAMeXchange.

During the same period, shares of Nanya Technology Inc (南亞科技), one of Taiwan's largest DRAM manufacturers, rose about 10 percent to NT$26.2 per share on the TAIEX Friday.

Shares of local Taiwanese rivals Powerchip Semiconductor Corp (力晶半導體) and ProMOS Technologies Inc (茂德科技) rose by 8 percent and 5 percent, respectively, on Taiwan's over-the-counter market last week.

"Europe showed more activity as the end of August neared and the US is now seeing strong demand from back-to-school procurement activity," a DRAMeXchange analyst said in a report issued on Thursday.

Seasonal demand is expected to continue to push DRAM prices up next month, but they are likely to slip back to around US$4 apiece or lower by the end of the year, DRAMeXchange said.

"[For the the near-term], the DRAM sector will outperform the broader TAIEX, which may seesaw in a narrow range this week as concerns over disappointing financial results at local companies lingers," said Kevin Chung (鐘國忠), an analyst with Jih Sun Securities Investment Consulting Co (日盛投顧).

Investors may that it's now safe to buy shares in DRAM makers because of their brisk first-half results, Chung said.

"I don't expect active buying, but shares of DRAM makers at least provide a relatively safe harbor for investors who are flush with cash," Chung said.

Chung suggests that investors look for companies that boast solid near-term earnings potential.

In the first six months, for example, Nanya Technology swung to profitability by earning NT$4.02 billion, or NT$1.13 per share. That's compared to a NT$1.52 billion loss a year earlier.

By contrast, Wistron Corp (緯創), a contract computer arm of Acer Inc, said last week that it would lose NT$800 million, or NT$0.84 a share, this year. Wistron had originally forecast earnings of NT$1.77 billion, or NT$2 per share.