Decline in chip prices cuts into Powerchip's earnings

Powerchip Semiconductor Corp (力晶半導體), Taiwan's biggest maker of memory chips for computers, yesterday reported a nearly 70 percent year-on-year decline in third-quarter earnings as chip prices collapsed on a supply glut.

But, the Hsinchu-based dynamic random access memory (DRAM) maker expects its fourth-quarter results to improve as prices are likely to stabilize after rebounding by around 13 percent sequentially during the July-September period.

"There's no room for DRAM prices to drop further," company chairman Frank Huang (黃崇仁) told an investor's conference yesterday. "The fourth quarter will be a better period than the third quarter."

Huang's comments were slightly more optimistic than remarks from an executive at the world's top memory-chip supplier Samsung Electronics Co last Friday, who said that DRAM prices would drop by another 5 percent by the year's end.

But Huang said that as prices should hold steady, the company's net income should amount to between NT$8 billion (US$239 million) and NT$9 billion, or NT$1.5 per share, for the full year.

Powerchip's third-quarter earnings plummeted to NT$2.3 billion from NT$6.98 billion during the same period last year amid falling chip prices.

The spot price for the benchmark 256-megabit, 400-megahertz double-data-rate DRAM chip fell 42 percent during the third quarter to US$2.6, from US$4.52 a year ago, according to DRAMeXchange, a Taipei-based online clearinghouse for memory chips.

The company's sales for the third quarter also slid to NT$13.32 billion from NT$16.14 billion during the same period last year, the company reported earlier.

Earnings grew sequentially, from the NT$900 million reported in second quarter after gross margin recovered to 21.5 percent from 4.8 percent, the company said.

"The result is slightly better than my expectation," George Wu (吳裕良), an analyst with Invesco Taiwan Ltd (景順投信) in Taipei, said.

Powerchip's earnings per share also dropped to NT$0.41. In the first three quarters, Powerchip's accumulated earnings reached NT$5.32 billion, or about NT$1 per share.

To reach Huang's target for the whole year, Powerchip will have to earn at least NT$2.63 billion during the current quarter.

"Powerchip has a chance of hitting that high target as it is expanding its production and memory chip prices will only drop moderately," Liu Szu-liang (劉思良), an analyst with Yuanta Core Pacific Capital Management (元大京華投顧), said.

Powerchip said output would expand by 18 percent this quarter from the previous quarter because of a better yield rate.