Oversupply reduces DRAM stocks
BEARISH: Slowing personal computer demand, high memory chip inventories and falling spot prices are keeping the stock prices of memory chipmakers low
By Thomas Ker
CONTRIBUTING REPORTER
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 (µØ¨¹¹q¤l) fell 3.4 percent to NT$33.9. Powerchip Semiconductor Corp (¤O´¹¥b®qÅé) slid 3.27 percent to NT$20.7, and Vanguard International Semiconductor Corp (¥@¬É¥ý¶i) 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 (Z¼w¬ì§Þ) and Nanya Technology Corp («n¨È¬ì§Þ) 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 (¥x¨|ÃÒ¨é). "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 (³¥§øÃÒ¨é) 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.
Other factors pulling down the memory chip makers' stock price include reduced liquidity in the market as retail investors need cash for the coming Chinese New Year, analysts said.
Increased chip output as manufacturers have migrated to the more cost-effective 0.18 micron manufacturing process has also depressed prices, local media reported. One micron is one millionth of a meter. The smaller geometry of the process technology increases chip output from the same-sized wafer.
However, analysts see the move as positive because it reduces production costs by at least a third. It has also already been factored in by the market, they said.
Indeed, the companies' share prices already reflect all of these factors, analysts said.
"In the short term, this is the lowest level," said Jeffrey Cheng, an analyst at Yuanta Securities (¤¸¤jÃÒ¨é). The next price movement of the stocks will depend on the direction of the whole stock market, he said.
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