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ProMOS posts a 90% drop in its earnings for Q3

ProMOS Technologies Inc (茂德科技), the nation's third-largest maker of memory chips for computers, posted a drop of more than 90 percent year-on-year in its quarterly earnings yesterday, as oversupply weighed on chip prices.

ProMOS said third-quarter earnings were NT$202.71 million (US$6.026 million), down 94 percent from NT$3.21 billion in the same period last year.

Earnings per share declined to NT$0.04 from NT$0.73.

Revenue fell nearly 30 percent to NT$7.73 billion from NT$10.93 billion a year ago. Last year's third-quarter earnings were based on statistics the company submitted to the Taiwan Stock Exchange.

But improved chip prices on the easing supply glut helped ProMOS swing to profitability in the third quarter.

"The most profitable year for DRAM makers was 2004. DRAM prices in the third quarter of 2004 rocketed to US$5 per unit amid an industrial up-cycle," company spokesman Ben Tseng (曾邦助) told investors yesterday.

Rebounding dynamic random access memory (DRAM) chip prices helped lift ProMOS's gross margin to 17.4 percent in the third quarter from the second quarter, he said.

During the second quarter, the gross margin dropped to negative 0.6 percent.

Prices then plunged around 50 percent, to less than US$2.5 a unit, in the same period this year, he said.

"DRAM prices will stabilize in the fourth quarter amid healthy demand," he said.

That would help ProMOS improve its revenue and profit in the current quarter, along with a 13 percent quarter-on-quarter output increase, mostly from its 300mm plant in central Taiwan, he said.

The spot price for the benchmark 256-megabit, 400-megahertz double-data-rate (DDR) DRAM chip fell 0.11 percent to US$2.51 per unit yesterday, according to DRAMeXchange, a Taipei-based online clearinghouse for memory chips.

"ProMOS's [third quarter] performance is quite impressive, compared to dwindling demand because of the tight supply of Intel's chipsets," said Crystal Lee (李懿薇), an analyst with ABN AMRO Asia Lt's local branch.

ProMOS beat Lee's projection of losses of NT$0.03 per share for the quarter ending last month. Lee gave a "hold" rating on ProMOS last month and a 12-month target price of NT$9.7.

The supply shortage has caused an excessive inventory of DDR2, which processes data faster than DDR1 chips, resulting in weakening DDR2 prices, Tseng said.

As a result, ProMOS is cautious about ramping up the production of DDR2 chips.
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