Thu, Dec 16, 2010 - Page 11 News List

DRAM prices expected to fall, Deutsche Bank says

By Kevin Chen  /  Staff reporter

Makers of computer memory chips, known as dynamic random access memory (DRAM) chips, are unlikely to see a V-shaped recovery in prices next year as they did in the first half of last year, Deutsche Bank said in its latest industry report.

While DRAM prices have thus far dropped by about 55 percent from their peak levels, they are expected to fall further until the second quarter of next year, Deutsche Bank said in a report called “Taiwan DRAM Industry on the Horns of a Dilemma” that was released on Tuesday.

Moreover, the market remains uncertain about the execution rate of DRAM makers’ transition to 40 and 35-nanometer process -technology, particularly Nanya Technology Corp (南亞科技) and Inotera Memories Inc (華亞科技), Deutsche Bank analysts Sc Bae and William Yang said in the report.

“Based on our assumptions on DRAM prices, the transition to 35nm and 40nm technology is crucial for profit generation and survival. We are not that optimistic about the 40nm transition at Inotera and Nanya in 2011 given both companies’ track records,” Bae and Yang wrote.

Even if both Nanya and Inotera were to make the technology transition, the two analysts said it would still be difficult for that factor alone to offset the likely continual fall in prices because of the resulting increase in supply against a weakening demand from the consumer end.

“This would still not guarantee [their] profitability,” they wrote.

The weakness in seasonal demand as well as high inventories at both DRAM makers and some major module houses have caused the average contract prices of the benchmark 1GB DDR2 (1 gigabyte, double-data rate two) chips to drop to US$1.81 per unit in October from US$2.31 in July, according to DRAMeXchange’s tallies.

Average contract prices of the benchmark chips were quoted at US$1.22 in the first half of this month, the Taipei-based online chip clearing house indicated on its Web site.

Deutsche Bank forecast the DRAM prices to reach US$0.8 per unit in the first quarter of next year after a short period of stabilization during the Lunar New Year holidays.

“While we forecast DRAM prices to rebound in 2011, we expect this to be capped at around US$1.1 to US$1.20 and, even then, the Taiwanese companies would still be loss-making,” Bae and Yang wrote.

Gartner said last week that the computer memory market is the “only segment” within the -semiconductor industry forecast to see revenue decline next year.

“DRAM is expected to decline 15.6 percent in 2011 due to weaker-than-expected PC demand and declining DRAM prices. NAND memory, however, is expected to grow 24 percent, as it is the main storage medium designed into many hot consumer electronic products,” the Stamford, Connecticut-based researcher said in a statement on Dec. 9.

In its report, Deutsche Bank maintained a “sell” recommendation on both Nanya and Inotera shares, with their target prices set at NT$9.50 and NT$10.50, respectively.

Nanya shares fell 0.92 percent to NT$16.2 yesterday and Inotera dropped 2.74 percent at NT$14.2, according to Taiwan Stock Exchange’s data. Bigger rival Powerchip Technology Corp (力晶) was down 0.87 percent to NT$5.68.

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