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Elpida to boost price of chip 20 percent this year

"Elpida is showing that it's upset at what's going on in the market ...This announcement tells the industry that the aggressive boost in capacity can't go on."

Paek Seung-hoon, CJ Asset Management Co

Elpida Memory Inc, Japan's largest computer-memory maker, plans to raise prices 20 percent this month, easing concern the glut that drove chipmakers to record losses in the US$31 billion market will persist.

Elpida will inform computer makers that it plans to increase prices 10 percent in the first half of the month and another 10 percent in the second half after demand rose and inventory levels fall, chief executive officer Yukio Sakamoto said in a Bloomberg Television interview broadcast yesterday.

Sakamoto's proposal clashes with projections by analysts at UBS AG and Macquarie Group Ltd, who estimate prices won't rebound from near-record lows until the second half of the year.

Should Tokyo-based Elpida convince its customers, the chipmaker would give rivals such as Samsung Electronics Co leverage to negotiate the biggest increase in prices since July.

"Elpida is showing that it's upset at what's going on in the market," said Paek Seung-hoon, who counts chipmaker shares among the US$3 billion he helps manage at CJ Asset Management Co in Seoul. "This announcement tells the industry that the aggressive boost in capacity can't go on."

RETURN TO PROFIT

Higher prices will help Elpida return to profit in the next 12 months, the 60-year-old Sakamoto said.

The operating loss in its fiscal year that ended yesterday was "not far off"' from the ?20 billion (US$200 million) estimated by Mitsubishi UFJ Securities Co, he said, declining to provide specific numbers.

"Now is the right time to raise our pricing," Sakamoto said. "Nobody can make profits at these levels; the market should really return to health now."

Nanya Technology Inc (南亞科技). may also increase prices this month after demand rose recently, Pai Pei-lin (白培霖), a spokesman for the Taoyuan-based company, said by telephone yesterday.

'POSITIVE SIGNAL'

Elpida's plan sends a "positive signal" to chipmakers, said Eric Tang (譚仲民), a spokesman at Powerchip Semiconductor Corp (力晶半導體), which has a production venture with the Japanese company.

He declined to say whether Powerchip will raise prices.

Ben Tseng (曾邦助), a spokesman at Hsinchu-based ProMOS Technologies Inc (茂德科技), and Park Hyun, a spokesman at Hynix Semiconductor Inc, declined to comment.

Lee Eun-hee, a spokeswoman for Samsung, said she couldn't immediately comment.

Dynamic random access memory chips temporarily store frequently used data, helping computer processors run programs faster.

"Clearing of inventory should be winding up, so prices should be changing in favor" of Elpida, said Yoshiharu Izumi, an analyst at JPMorgan Chase & Co in Tokyo.

Overproduction has left Samsung as the only profitable company among major DRAM producers, the latest publicly available financial results show. Elpida, Nanya and Qimonda AG have reported record losses, while Hynix and Micron Technology Inc have posted their biggest deficits in at least four years.

Chipmakers are selling the benchmark 512-megabit DRAM chip US$0.03 shy of the US$0.88 record low in December, after slashing prices by 85 percent last year, said Dramexchange Technology Inc, operator of Asia's largest semiconductor spot market.

Roger Chu, an analyst at Dramexchange in Taipei, estimates chipmakers will reduce prices by 5 percent to 10 percent this month.

A 10 percent increase would be the biggest since last July, when prices rose 20 percent, Dramexchange figures show. Makers of DRAM typically negotiate prices twice a month.

REBOUND

Analysts at UBS, Macquarie and CLSA wrote in reports last month that DRAM prices may not rebound until the second half of this year. Goldman Sachs Group Inc said in a March 23 note that prices are unlikely to recover this year because of oversupply.

South Korea's Hynix said last week it was considering cutting investments during the second half, possibly joining ProMOS, Qimonda and Nanya in scaling back production plans.

DRAM makers will probably reduce capital spending by about 40 percent this year, Goldman Sachs said.

Slowing expansion of capacity may be working. In the past week, fewer DRAM makers have sold chips at prices that "undermine" the market, Sakamoto said. Rising demand, stemming from the higher memory needs of Microsoft Corp's Windows Vista operating system, is also allowing chipmakers to clear excess inventory, he said.

Powerchip president Brian Shieh (謝再居) predicted in February that DRAM prices would rise this month. Prices of the 1-gigabit chip may climb to US$3.50 by as early as July, he said. The chip has fallen US$0.07 to US$1.81 since Shieh's comments, Dramexchange said.

Credit Suisse Group said on March 11 that prices of the 1-gibabit chip may more than double to US$4 this month, while Woori Investment & Securities Co said on March 21 that DRAM prices will probably rebound in the second quarter.

"Things are getting better," Sakamoto said. "DRAM prices have bottomed out and should be improving now."
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