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Plunging DRAM prices drag memory chipmakers into the red, analyst says

"We believe DRAM prices are hitting bottom, but the initial recovery in the third quarter may not be strong enough for DRAM suppliers to break even ... We haven't seen real demand from end-users coming back yet."

Joyce Yang, DRAMeXchange analyst

Global computer memory chipmakers are expected to swing into losses this quarter as prices plunge on a supply glut, and they may not see a significant pickup in business until the fourth quarter, a Taipei-based market researcher said yesterday.

A 15 percent surplus has driven the price of computer memory chips, or dynamic random access memory (DRAM), down by more than 50 percent to less than US$2 per unit yesterday, DRAMeXchange said.

The price decline impact on annual revenues will range from 17 percent to 34 percent for the nation's three major DRAM companies, led by Powerchip Semiconductor Corp (力晶半導體).

"We think most DRAM makers are in losses now as the price has dropped to below the average cost of US$2.5 apiece," DRAMeXchange analyst Joyce Yang (楊雅欣) told reporters on the sidelines of a forum being held at the Computex show trade in Taipei.

Nanya Technology Corp (南亞科技), the nation's second-biggest DRAM supplier, said on Wednesday that Inotera Memories Inc (華亞 科技), its DRAM joint venture with Infineon Technologies AG, could be the only DRAM chipmaker to post profits for the current quarter.

News that South Korean suppliers plan to reduce their DRAM output by allocating equipment to the manufacture of flash memory chips, which are used in consumer electronics and laptop computers, could lead to a rebound next month, Yang said.

"We believe DRAM prices are hitting bottom, but the initial recovery in the third quarter may not be strong enough for DRAM suppliers to break even," she said. "We haven't seen real demand from end-users coming back yet."

Yang's comments underscore market concern that Microsoft Corp's Vista operating system has failed to spur enough demand for memory chips to overcome a glut.

Nathan Su, a product manager at memory-chip module maker Kingston Technology Co, told Bloomberg Newswire at Computex on Wednesday that prices might fall as much as 20 percent in the "next few weeks."

"Microsoft says sales are strong, but that has yet to be proven" to the computer memory market, Su said. "Vista is the key."

Yang said DRAM prices might recover -- by a "lukewarm" 17 percent next quarter and by another 12 percent by the end of the fourth quarter to bring the price to US$2.60.

"This should be the worst year for DRAM companies. In the next three years, oversupply may ease. Output growth will slow down as chipmakers undergo a transition to next-generation chips," Yang said.

Global DRAM makers are expected to increase output by 85 percent annually this year and the growth rate may decelerate to a healthy 53 percent, she said.
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