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Powerchip refuses to reduce capacity

Powerchip Semiconductor Corp (力晶半導體), the nation's biggest computer memory chipmaker, said yesterday that it did not plan to slow its capacity expansion, or reduce its exposure in the spot market despite the continual drop in memory chips prices amid a supply glut.

As of yesterday, the price of a Powerchip share has dropped nearly 30 percent this year to NT$15.2. The price of dynamic random access memory (DRAM) chips have plunged more than 77 percent to around US$1.36 per unit yesterday, market researcher DRAMeXchange Technology Inc (集邦科技) said.

That would put most memory chipmakers under heavy pressure to turn a profit.

Powerchip said in July that it was struggling to turn a profit after prices slid to below US$1.5 per unit.

Rivals Elpida Memories Inc of Japan and Hynix Semiconductor Inc of South Korea said last week that they planned to reduce, or even stop selling chips to the spot market in a bid to stem the price decline.

"Powerchip is the biggest memory chip supplier on the spot market. We will not change this business model. Our expansion plans are also on schedule," company spokesman Eric Tan (譚仲民) told the Taipei Times yesterday.

"We do not want to lose market share by reducing supply, or cutting capacity," Tan said. "And we believe that the DRAM price is hitting the bottom."

Powerchip planned to spend NT$71 billion (US$2.18 billion) on new facilities and equipment this year.

Powerchip said its production would grow around 75 percent annually this year, with half of the increase coming from Rexchip Electronics Corp (瑞晶電子), a 50-50 joint venture with Elpida.

Rexchip produces 30,000 12-inch wafers a month at its first plant in Taichung. It planned to more than double monthly production -- to as much as 70,000 wafers -- in the first half of next year as planned, Tan said.

Rexchip held an opening ceremony for its first 12-inch wafer plant yesterday, which was attended by its chairman Frank Huang (黃崇仁) and Elpida president and CEO Yukio Sakamoto.

Rexchip announced late last year that it planned to spend NT$450 billion to build four 12-inch plants in Taiwan over the next five years.

It is now building the second plant in Taichung, which could start to make chips by the end of next year at the earliest, Tan said.

As for Powerchip, its plan to build two new plants in Hsinchu was stalled this summer when it was unable to obtain land from the government, Tan said.

The two new plants would produce NAND flash memory chips, which are used to store data for consumer electronics such as music players and digital cameras, Tan said.

He refuted a report carried by Bloomberg yesterday that the company would begin construction of the two plants later this year and start making flash memory chips by the fourth quarter of next year.

"It was just media speculation," he said, citing the lack of land for new plants.

Separately, Goldman Sachs Group Inc lowered its earnings estimates on Japanese semiconductor-equipment manufacturers, such as Tokyo Electron Ltd for next fiscal year, citing possible reductions in investments by chipmakers amid declining prices.

"A majority of Japanese semiconductor production equipment manufacturers will likely record lower sales and profits in FY2008,'' Shin Horie, Toshiya Hari and Mari Murakami, Tokyo-based analysts at Goldman Sachs, wrote in a report released on Thursday.

Goldman Sachs said that it expected chip investment to drop by 10 percent next year because foundries will be more cautious about investment and Taiwanese DRAM manufacturers may postpone spending in response to declining prices.

Additional reporting by Bloomberg
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