Thu, Aug 21, 2003 page10

• To be profitable, DRAM makers must be patient

  CURB THE ENTHUSIASM Stabilizing prices and smaller inventories are making the DRAM chip-manufacturing business profitable again, but can discipline be maintained?

  • By Bill Heaney / STAFF REPORTER
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  The market for computer memory chips is finally recovering after a slump of more than two years, but industry experts warned yesterday of a rapid return to recession if chipmakers in Taiwan and South Korea pump out too many chips.

  The global market for the most popular dynamic random-access memory (DRAM) chips -- used in devices as diverse as computer printers, advanced mobile phones and DVD players -- is expected to reach US$18.9 billion this year, up 21.8 percent from last year, the US-based research firm Gartner Inc reported yesterday.

  "This recovery is going to be based on lack of supply, not increasing demand," said Andrew Norwood, principal analyst for Gartner's semiconductor research group, said in the report.

  "We have been here before, and if the DRAM vendors become greedy and increase production, the industry will quickly swing back into oversupply and prices will crash," he said.

  BEFORE THE DELUGE

  Memory-chip prices plummeted in 2001 as an increasing number of manufacturers in Asia cranked up production and flooded the market.

  Since then, the market has seen prices rollercoaster as advanced and more expensive products brought a brief recovery for industry leaders, only to be followed by a crash in prices as smaller competitors caught up.

  "Stabilizing prices and lower inventories alone do not constitute a recovery in the DRAM industry," Norwood said, "but these factors combined, and the positive sentiment in the DRAM industry, point to the possibility that the DRAM industry recovery has, at long last, begun."

  "Recent cuts in planned DRAM supply by major vendors have set the industry up for a possible shortage. If this happens, it will mean a return to profits for vendors and strong revenue growth," Norwood said.

  Sustainable recovery?

  A supply shortage is not enough to sustain the recovery, another analyst said.

  "Our PC analysts haven't seen a great surge in demand for PCs, so some people are being a little overzealous about a recovery," said Paul Hsu (許博惟), a semiconductor industry analyst at Insight Pacific in Taipei.

  Computer makers are major users of DRAM chips, but a much-anticipated recovery in the personal computer market has yet to materialize.

  The spot price of the benchmark 256-Megabit double-date rate (DDR) DRAM chip has risen by over 60 percent from a low of US$3.03 in May, according to Taiwan-based online trading site DRAMexchange.com.

  Major DRAM suppliers are also increasing the contract prices they have with their largest customers.

  The world's largest DRAM chip producer, South Korea's Samsung Electronics Co, announced yesterday it is raising contract prices by as much as 10 percent and rivals in Taiwan like Nanya Technology Corp (南亞科技) are following suit.

  "In line with market expectations, the contract price for the second half of August surged again," said DRAMexchange.com.

  It remains to be seen whether DRAM makers resist the temptation to increase production as the recovery kicks in.

  "It's so easy for DRAM makers to flood the market," Hsu said. "It's not like steel. DRAM makers could flood the market overnight, if they wanted to."
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