Nanya upbeat on second quarter

Nanya Technology Corp (南亞科技), the nation's second-largest maker of computer memory chips, yesterday said that its second-quarter profits would improve, thanks to supply constraints and price hikes in response to growing demand for next-generation memory chips.

Growth momentum will be even stronger in the second half of the year, as more new computers will be equipped with Microsoft's latest operating system, Windows Vista, which will help Nanya Technology, company spokesman Pai Pei-lin (白培霖) said.

"Profits for this year will outpace 2005. We may have a chance to exceed the earnings made in 2004, which was a lucrative year for DRAM [dynamic random access memory] makers," Pai said.

Computers running the Vista operating system need much more memory than computers run on current operating systems, which analysts said would boost demand for memory chips.

Pai spoke to reporters at the company's booth at the annual Computex trade show, where Nanya Technology is showcasing the latest DDR2 (second-generation double data rate) chips that provide much faster speeds and higher data bandwidth for multimedia functions than its older-generation chips.

Pai said his confidence stemmed from constant solid demand, and limited supplies in the near term for memory chips.

"In order to satisfy demand from our customers, we reduced supply to the retail market to around 25 percent from 30 percent [of the total output] norm in May and June," Pai said.

Nanya supplies most of its memory chips on a contract basis to computer vendors, including the world's two largest PC makers Dell Inc and Hewlett Packard Co.

Rising demand has contributed to a supply crunch and driven contract prices up by about 50 percent. The benchmark DDR2 512MB chip shot to US$6.2 per unit late last month from US$4.22 per unit early this year, according to Taipei-based market researcher DRAMeXchange.

As a result, "Nanya Technology's gross margin for the second quarter will be more than 24 percent better than that in the first quarter because of price hikes," Pai said.

Nanya Technology beat most analysts' expectations by posting NT$2.04 billion in net income, or NT$0.54 a share, for the January to March quarter.

The firm's gross margin for the third quarter will improve even more, as chip prices will rebound next month on seasonal demand, continued supply constraints and more white-box computers using Vista starting in the second half of this year, following the lead of the major PC brands, he said.

Nanya's larger rival Powerchip Semiconductor Corp (力晶半導體) also had a bullish outlook.

"Growing adoption of Vista and demand for low-priced computers will fuel growth," said Peter Ting (丁振鐸), a vice president of Powerchip.

Ting was more optimistic than Pai, saying that memory chip prices would bounce back in the third quarter and the uptick would last for the next three quarters.

But DRAMeXchange said that memory chip prices would fall in the third quarter this year after hitting a peak this quarter, amid easing chip shortages.

Nanya Technology shares climbed 3.88 percent to NT$20.10 on the Taiwan Stock Exchange yesterday, while Powerchip shares jumped 4.72 percent to NT$22.2 on the over-the-counter GRETAI Securities Market.