Oversupply reduces DRAM stocks

Shares in memory chipmakers fell yesterday, some limit down, in response to falling spot market prices and on concern that slowing demand for PCs will prolong the oversupply of memory chips well into next year, analysts said.

Shares in Winbond Electronics Corp (華邦電子) fell 3.4 percent to NT$33.9. Powerchip Semiconductor Corp (力晶半島體) slid 3.27 percent to NT$20.7, and Vanguard International Semiconductor Corp (世界先進) fell 3.03 percent to NT$16.

The Ministry of Finance last month halved the daily-down limit for stocks to 3.5 percent until the end of the year to boost stock prices.

Shares in ProMOS Technologies Inc (茂德科技) and Nanya Technology Corp (南亞科技) also fell.

Compaq Computer Corp's addition to the list of companies issuing profit warnings because of slowing PC demand came as no surprise, analysts said. But it dampened any prospects of a possible revival of dynamic random access memory chip prices until the second half of next year. Some market watchers had anticipated a revival from the second quarter of the year.

Compaq's announcement Tuesday followed similar recent warnings from computer companies Apple Computer Inc and Gateway Inc, and computer processor makers Intel Corp and Applied Micro Devices Inc.

"If Compaq is giving a warning for the first quarter of next year, people would think the PC industry is not going to come back up any time sooner than the second half of next year," said George Wu, an analyst at Tai Yu Securities Co (台育證券). "That's not good news for the DRAM companies," he said.

DRAM chips are the main memory chips used in personal computers.

Compaq is expecting computer sales to rise 10 percent next year, with the second half stronger than the first, said Michael Capellas, chief executive of Compaq, in a Bloomberg report.

The weak delivery price for memory chips traded in the spot market, caused by an oversupply as demand for PCs has slowed, was also a factor lowering the share prices of memory chip makers, analysts said.

The spot price for 64-megabit dynamic random access memory traded in a range between US$3.15 and US$3.34 on Wednesday. Analysts expect the price to remain depressed and consolidate at about US$3.

"Our sources detect the PC vendors still have some three to four weeks' inventory [of memory chips]," said Rick Hsu, senior analyst at Nomura Securities (野村證券) in Taipei. With the memory chip manufacturers themselves also holding large inventories ranging from four to five weeks, the memory chip market should remain oversupplied in the first quarter of next year.

"We expect prices to hover around the US$3 neighborhood, but this will take another few weeks to consolidate," Hsu said.

Of more concern now is the price of the faster and more powerful 128-megabit memory chips. The price of the chips has tumbled from over US$16 at the end of September to a trading range on Wednesday of between US$6.89 and US$7.30, according to the American IC Exchange.

"If it drops below US$6, it's getting near the manufacturing cost," said George Wu.

Memory chip makers have been shifting to production of 128-megabit chips recently to minimize the impact of the falling 64-megabit equivalent.

Winbond said on Saturday that 128-megabit products now make up about 70 percent of its dynamic random access memory chips. The company blamed the falling DRAM price for its 4 percent fall in revenue last month compared with October. November's revenue of NT$3.96 billion showed a nearly 30 percent fall on the record revenue the chipmaker posted in August, when chip prices were over 60 percent higher than current prices.