Memory chipmakers brace for tough quarter
Industry headed for loss; DRAM suppliers overshot Vista demand: analyst
The real rootcause is due to transiton from 200mm to 300mm;
how the hell do they provide a supply analysis without looking at 200mm versus 300mm - over and over Nanya et al send the message nad they still don't get it.
It's not Vista - it's the move from 200mm to 300mm
Despite ML bashing Nanya is close to 52 week high - WHY smart ass?
finance.yahoo.com
Memory chipmakers brace for tough quarter
Industry headed for loss; DRAM suppliers overshot Vista demand: analyst
By Matt Andrejczak, MarketWatch
Last Update: 12:01 AM ET Jun 4, 2007
SAN FRANCISCO (MarketWatch) -- Personal computer sales cannot take off fast enough for the makers of computer-memory chips known as DRAM, an industry on pace to suffer one of its worst business quarters this decade.
Amid plunging prices and expanded factory output -- which is forcing some manufacturers to sell their chips below the costs to produce them -- all DRAM makers are expected to lose money this quarter for the first time since 2001, according to one semiconductor researcher.
Suppliers of DRAM chips "overforecasted Vista demand," said iSuppli analyst Nam Hyung Kim, referring to Microsoft Corp.'s new PC software operating system released to corporations last November and to consumers in January.
The DRAM industry, whose chips are mostly used in PCs and Internet-server networks to retrieve data at high speeds, is expected to post a weighted negative operating margin of 19% in the second quarter, based on calculations from researcher iSuppli.
The last time the industry fell to such a level was in the second quarter of 2003 when the sector had a negative operating margin of 16% -- only Samsung Electronics Co. made money during that period, according to iSuppli analyst Nam Hyung Kim.
Entire chip sector affected
The DRAM market's woes are rippling through the entire semiconductor industry, forcing industry forecasters to cut 2007 revenue estimates.
On Thursday, researcher Gartner Inc. pared its worldwide sales target to growth of 2.5%, down from its prior forecast of 6.4%, largely blaming DRAM for its reduced forecast.
Weak prices are hurting chipmakers Micron Technology Inc. and Qimonda AG, among the world's largest providers of DRAM, and pinching the order books at Applied Materials Inc. (AMAT :
Applied Materials Inc
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AMAT19.25, -0.09, -0.5% ) and Lam Research Corp. (LRCX :
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LRCX54.65, +0.61, +1.1% ) , who supply the equipment to make DRAM chips.
In the current business period, Micron (MU :
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MU12.57, -0.03, -0.2% ) is expected to lose 17 cents a share, while Qimonda (QI :
qimonda ag sponsored adr
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QI15.83, -0.14, -0.9% ) is anticipated to lose 29 cents, according to analyst polled by Thomson Financial.
So far this year, average spot prices for mainstream DRAM have tumbled 65%, according to Gartner, recording the steepest and most-persistent price decline this decade.
The 'Vista effect'
On the flip side, PC makers Hewlett-Packard Co. (HPQ :
Hewlett-Packard Co.
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HPQ45.98, +0.17, +0.4% ) and Dell Inc. (DELL :
dell inc com
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DELL27.32, +0.01, +0.0% ) have been able to stock up on cheap DRAM, which may help profit margins at the world's largest PC sellers. Dell, for instance, posted its best gross margin in six years in the first quarter, thanks to low DRAM prices, analysts said.
Tech-market watchers pin the plight of the DRAM industry on sluggish PC shipments and the rising number of factories built last year and coming online this year to produce the memory chip.
Most tech observers don't anticipate Microsoft's Vista will have much of a positive impact on PC sales until 2008. Gartner forecasts worldwide PC shipments to increase 10.5% in 2007 over 2006, with Vista providing a "limited boost."
To help reverse dangerously low chip prices, DRAM manufacturers "have to rationalize capacity. I think they will," said Kim.
There are encouraging signs on the horizon.
Hynix Semiconductor, the world's No. 2 maker of DRAM, has already begun to switch some of its DRAM production back to NAND flash instead, according to DRAMeXchange, a Taiwanese-based firm that provides daily reports on spot prices and other industry trends.
NAND flash is another type of memory-technology widely used in hand-held music players, such as Apple Inc.'s iPod. Hynix and Samsung, big players in both the DRAM and NAND flash markets, are reportedly raising NAND flash production to meet increased demand from Apple.
Tech-market insiders closely watch for factory production shifts at Hynix and Samsung as they can have a future impact on chip prices. Hynix and Samsung are key players in the DRAM and NAND flash markets, collectively controlling about 40% of worldwide DRAM sales and 60% of NAND sales.
The DRAM industry is known for its wild swings. In 2006, industry sales surged 36% to $33.9 billion and the industry's operating profit margin was 22%, according to iSuppli. The market took a turn for the worse in January and prices have showed few signs of recovery.
Edwin Mok, analyst at Needham & Co., expects the pricing pressure to persist through much of the summer. "As an abundance of new supplies comes online in the third quarter, we believe the lack of demand drivers will once again push DRAM prices lower," he said.
As of May 25, average spot prices of mainstream DRAM prices sold for as low as $1.55, far from the high of around $7 last September, Gartner data show.
ISuppli's Kim said he is expecting some DRAM makers to swing back to profitability later this year, when PC sales are usually stronger in the back-to-school and holiday buying seasons. Based on his calculation, the DRAM industry should post an operating profit margin of 3% in the third quarter and 17% in the fourth quarter. End of Story
Matt Andrejczak is a reporter for MarketWatch in San Francisco. |
