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Nanya Technology reports heavy Q2 losses

Nanya Technology Co (南亞科技), the nation's second-largest maker of computer memory chips, yesterday reported its first quarterly losses in two years as chip prices plunged amid oversupply, but said a recovery is underway as demand picks up.

The company posted losses of NT$2.81 billion (US$85.7 million) in the quarter ending June 30, compared with a net income of NT$3.73 billion a year ago, as the average selling price (ASP) of DRAM chips plunged 55 percent during the same period.

Despite the second-quarter losses, the company said it would continue with its plan to invest NT$60 billion in capital expenditure this year.

It added that it expected prices to pick up in the second half, given clearer indications of a recovery in demand.

"The month of June is the bottom. Prices jumped 20 percent in the first half of July and another 5 to 10 percent in the second [half]," company spokesman Pai Pei-lin (白培霖) told a media briefing.

"Our inventory is falling dangerously low," Pai said.

The recovery was not only reflected on stockpile reduction, but also earlier-than-expected back-to-school demand this month, especially in Europe, Pai said, citing customers' observation.

"Our customers tend to order ahead because of concerns of a supply constraint in the second half," Pai said.

With demand already exceeding its capacity, Pai said Nanya Technology would focus on supplying those that offer better prices, adding that ASP was expected to improve on a quarterly basis.

Nanya Technology supplies DRAM chips to PC vendors such as Dell Inc and Hewlett Packard Co.

Liu Szu-liang (劉思良), a DRAM industry analyst with Yuanta Core Pacific Capital Management (元大京華投顧), however, said that Nanya Technology has a weak cost structure as the chipmaker operates two costly eight-inch (200mm) plants.

"Nanya Technology's performance was worse than I thought as it was slow to reduce costs. And I don't expect a significant improvement next quarter," Liu said.

Nanya Technology's second-quarter losses far exceeded Liu's forecast of losses of NT$1.5 billion.

The company may be merely on the brink of breaking even next quarter as it would not benefit from a demand recovery as much as its rival, Powerchip Semiconductor Corp (力晶半導體), which has a stronger cost structure, Liu said.

For the first six months of the year, Nanya Technology earned NT$482 million, or NT$0.12 per share, on sales of NT$29.52 billion.

To enhance its competitiveness, the company plans to sell up to 450 million new shares later this year to fund a 12-inch (300mm) plant that is under construction.

Nanya Technology now relies on Inotera Memories Inc (華亞科技), a memory chip joint venture with Infineon Technology AG, to boost output.

Inotera yesterday said shipments this year would be double that of last year thanks to faster capacity expansion. The company originally forecast a shipment growth of 80 percent this year.

Inotera said in a separate statement that net earnings in the second quarter plunged 95 percent to NT$273 million, or NT$0.08 a share, from a year earlier, because of price erosion.

Accumulated net income in the first half was NT$4.15 billion, or NT$1.33 per share.
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