Wed, Sep 10, 2008 page12

• Powerchip counting on output cut

  • By Lisa Wang / STAFF REPORTER
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  Powerchip Semiconductor Corp (力晶半導體), the nation’s largest computer memory chipmaker, is pinning its hopes on an output reduction to stem persistent losses after a strategic alliance among memory chipmakers failed to solve a year-long glut that has sent chip prices falling below cash cost levels.

  But analysts are skeptical that the chipmaker’s efforts would help the ailing computer memory, or dynamic random access memory (DRAM), industry, which is facing its severest slump in history.

  “As the [reduction] would affect only 10 percent of the company’s [Powerchip’s] commodity DRAM output, we don’t expect investors to react strongly to this announcement,” said George Chang (張家麒), who tracks the DRAM industry for Citigroup, in a report released yesterday.

  Investor doubts that the production cut could spur an industrywide recovery was reflected in DRAM stocks’ lackluster trading yesterday, although all DRAM stocks have already plunged to below their NT$10 face value.

  The capacity management plan only gave a boost to Powerchip shares, which rose 1.34 percent to NT$4.55, while local rivals fell between 3.01 percent and 6.95 percent. Inotera Memories Inc (華亞科技), a memory venture between Nanya Technology and Germany Qimonda AG, posted the sharpest drop to NT$9.91.

  On Monday, Powerchip chairman Frank Huang (黃崇仁) said the chipmaker planned to allocate between 10 percent and 15 percent of its computer memory capacity to manufacture other types of chips to narrow its losses. The company also urged its local peers to follow suit.

  “It’s a problem of survival, not of making money,” Huang said.

  He said that the latest downturn was the severest he has ever seen during his 18-year career in the DRAM industry, as prices have plunged drastically to a level at which chipmakers could not turn a profit even by using advanced 50-nanometer process technology.

  The price for benchmark DRAM chips nose-dived to an all-time low of US$1.65 per unit early this month on the spot market and could drop further as slower-than-expected demand fails to ease the glut, Taipei-based researcher DRAMeXchange Technology Inc (集邦科技) said.

  Stricter production management would at least bring the DRAM industry back on track faster at the expense of lower revenues, Huang said.

  But Nanya Technology Corp (南亞科技), the nation’s second-biggest DRAM supplier, said yesterday it had no plans of cutting production as this could drive up its factory usage cost.

  Cautious analysts like Liu Szu-liang (劉思良), a semiconductor analyst with Yuanta Securities (元大京華證券), said that production reduction might not tilt the supply-demand balance in chipmakers’ favor and was no guarantee that it could hasten the end of the year-long slump.

  “Heavyweight players like Samsung Electronics Co are expanding capacity during the slowdown to force small companies to withdraw from the market,” Liu said.

  In particular, companies with high inventories are under heavy pressure to survive the downturn as they continue to post massive losses given their dependence on DRAM to generate revenues, he said.

  Aggregate losses by Taiwanese makers reached about NT$50 billion (US$1.6 billion) in losses in the first six months of this year.

  “Besides, the latest downturn is different from the last one in 2000,” Liu said.

  DRAM firms regained momentum as output dropped sharply following major consolidations, he said.

  “This time, the recovery will only come after demand strongly rebounds, or companies that run out of cash are forced out of the market,” Liu said.
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