Sat, Oct 15, 2005 - Page 10 News List

DRAM makers likely to post drop in earnings

DROOPING REVENUE Analysts expect an 80 percent drop in earnings for Powerchip and a 50 percent fall for Nanya from last year on falling chip prices and weak demand

By Lisa Wang  /  STAFF REPORTER

The nation's computer memory chipmakers, led by Powerchip Semiconductor Corp (力晶半導體), may report sharp declines in quarterly earnings amid falling chip prices and lukewarm back-to-school demand, analysts said yesterday.

Taiwanese memory chipmakers are likely to report weaker third-quarter results than their bigger Korean rival Samsung Electronics Co, which has a wider product portfolio, said Wang Bou-li (王博立), an analyst with SinoPac Securities Corp (建華證券).

Samsung Electronics, the world's biggest memory chipmaker, yesterday told investors that earnings for the July-September period slid 30 percent from the same period last year on lower chip prices.

"Falling prices also eroded local chipmakers' gross margins," Wang said. "Besides, seasonal back-to-school demand is slower than expected," he said.

Powerchip, Taiwan's biggest maker of dynamic random access memory (DRAM) chips, may report an 80 percent plunge in its third-quarterly earnings, from NT$6.98 billion (US$209 million) to NT$1.5 billion a year earlier, Wang said.

Earnings per share will also decline to NT$0.35 from NT$1.71, according to Wang's projection.

Gross margins could slide to around 20 percent, from some 50 percent during the third quarter of last year, after prices of DRAM chips recently plunged around 44 percent year-on-year to US$2.4 per unit, Wang said.

Powerchip is scheduled to release its third-quarter results on Monday, and rival Nanya Technology Corp's (南亞科技) results are due out Wednesday.

Despite the drastic decline, Wang said "the result is not too bad for chipmakers like Powerchip who only make standard DRAM chips -- unlike Samsung, which can rely on NAND flash chips to boost its margins."

DRAM chips are mostly used in personal computers, while NAND flash chips are used in consumer electronics such as digital music players and digital cameras.

Another analyst with Barits International Securities Co (倍利投信), who asked not to be named, said that "at least, profits are recovering after prices of DRAM chips rebounded from the second quarter."

Samsung yesterday said DRAM prices bounced back by around 8 percent in the third quarter from the previous one. Looking forward, it expects prices to drop less than 5 percent in the current quarter on strong demand.

Nanya Technology, Taiwan's No. 2 DRAM maker, may also post lower third-quarter results, down nearly 50 percent to NT$1.1 billion, the Barits analyst said. The decline in earnings may be blunted somewhat by Nanya's memory chipmaking venture Inotera Memory Inc (華亞科技) with German Infineon Technology AG.

Earnings per share will fall to NT$0.29, he said. Nanya Technology mostly supplies chips to computer vendors such as Dell Inc.

Inotera now makes chips at a cutting-edge 300mm (or 12-inch) plant -- so named because circuits are printed on round 300mm wafers which are then sliced into individual chips. Older plants print chips on smaller wafers, which is less cost-effective.

The company plans to build a second plant after raising funds through an initial public offering at home and a share sale overseas next year.

Powerchip yesterday signed a NT$15 billion syndicated loan with local banks led by Cathay United Bank (國泰世華銀行), to purchase equipment for its second 300mm fab, the company said in a statement submitted to the Taiwan Stock Exchange.

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