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Cut DRAM holdings, analyst says

Investors are advised to dump Taiwanese computer memory chip stocks ahead of quarterly earnings releases beginning next week, as losses loom from weak chip prices, an industry watcher said in a recent report.

Heavy price pressure is putting industry watchers on guard. "DRAM [dynamic random access memory] chipmakers will face another [difficult] month after a challenging quarter ended March," said Frank Wang (王安亞), an analyst with Morgan Stanley in Taipei, in a report released last week.

"We reiterate our cautious view on the Taiwanese DRAM industry," Wang said.

After a 20 percent price decline last month from February, spot prices and contract prices for DRAM chips are expected to drop further to US$2 and US$2.5 per unit this month, Wang said.

These prices are below the average production cost of US$3 for local DRAM makers, Wang said.

After a 30 percent to 40 percent plunge in memory chip prices since the beginning of the year Wang expects Winbond Electronics Corp (華邦電) to be the first company to post a loss for the first quarter of this year, which would mark its first loss in six quarters.

Spot prices for DRAM chips rebounded slightly to US$2.55 during the March 28-April 4 week, according to market researcher DRAMeXchange. But, said DRAMeXchange analyst Rickie Yang, expectations for weak contract prices will put pressure on the spot market for the next two weeks.

Expressing a similar view to Wang, Yang predicted that the contract price for mainstream 256 megabit chips will fall to US$2 this month on sagging computer demand in the current quarter.

As more companies may report losses in the April-June quarter due to price erosion, "we advise investors to reduce [their] positions ahead of the first quarter of 2005 earnings releases," Wang said.

Powerchip Semiconductor Corp (力晶半導體), the nation's biggest maker of computer memory chips, could report a monthly loss this month and smaller player Nanya Technology Corp (南亞科技) is expected to book losses in the current quarter, Wang said.

Powerchip and Nanya Technology are scheduled to report their financial results for the January-March quarter next Tuesday and Friday, respectively.

In line with the decline in spot prices, shares of Taiwanese DRAM suppliers will fall by 10-20 percent in the near term, Wang said.

Shares of Powerchip could fall slightly more than others given that it has the greatest exposure to the DRAM spot market, he said.

Shares of Nanya Technology have dropped by around 13 percent to NT$22.15 on the Taiwan Stock Exchange since January, while Powerchip has only inched down 3 percent during the same period on the nation's over-the-counter market, the Greitai Securities Market (櫃台買賣中心).
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