Mon, May 23, 2005 page10

• Investors warm to memory-chip firms

  SEMICONDUCTORS Prices for DRAM chips are expected to rebound next month on seasonal demand, which bodes well for quarterly earnings, market watchers said

  • By Lisa Wang / STAFF REPORTER
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  Taiwanese makers of computer memory chips regained investor interest as chip prices are set to rebound on seasonal demand as early as late next month, after slumping by over 40 percent in the past few months, industry watchers said in their latest reports.

  "DRAM [dynamic random access memory] pricing has bottomed and could recover by the end of June, or early July on seasonality," said Frank Wang (王安亞), an analyst at Morgan Stanley in Taipei, in a report released over the weekend.

  Prices should improve slightly to US$3 for mainstay 256-megabit DRAM chips in the second half of this year as seasonal demand will cause a 4 percent supply constraint, Wang said.

  That would reverse a 6 percent supply glut in the first six months of the year, which along with sagging computer demand has driven chip prices down to US$2.3 since the beginning of this year, from a peak of around US$5, according to Wang.

  In light of the more optimistic near-term outlook, Wang upgraded the Taiwan DRAM sector to "In-line" from "Cautious."

  Wang also raised investment ratings on Powerchip Semiconductor Corp (力晶半導體) and Nanya Technology Corp (南亞科技) to overweight from underweight, saying that the uptick would boost the quarterly financial results of local DRAM makers.

  Wang's target prices for the nation's two largest memory chipmakers for the next 12 months are the same, at NT$30, according to the report.

  Shares of Powerchip fell NT$0.05 to NT$24.3 on the Gretai Securities Market last Friday. Nanya Technology shares gained NT$0.45 to NT$23.35 on the broader Taiwan Stock Exchange on the same day.

  But, over the longer term, Wang said expectations of 5 percent oversupply next year remain a serious concern.

  Wang, a pessimist compared with his peers, has lagged most industry watchers in lifting his investment ratings on DRAM companies.

  Early this month, Nalwen Kerr, a semiconductor analyst with Lehman Brothers, raised his investment ratings on Powerchip and Nanya Technology to overweight from underweight, saying an industrial upturn is in the offing.

  "We expect inventory days could soon improve, which we think is an important sign for the industry's recovery," Kerr wrote in the report, adding that overcapacity has taken a toll on DRAM chips suppliers' revenues in the past two years.

  Inventory of finished goods at Taiwan's DRAM chip suppliers fell to 13 days as of the end of the first quarter. This is half of the 24 days inventory recorded during the last downturn in 2001, according to Kerr.

  As a result, "We believe the DRAM price correction this year to date has run most of its course," Kerr said, hinting at limited risk for share prices to fall further.

  For the full year, Kerr projects that prices of the mainstay 256-megabit DRAM chips will fall by 39 percent to US$2.76 per unit on the spot market, which is less severe than the previous industry downcycles.

  As most of the bad news related to the downcycle has been factored in, Kerr said that the risk of stock prices sliding further is limited.

  Lehman Brothers is inclined to turn more positive on Taiwanese DRAM stocks over the next few months, according to the report.
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