Taiwan Memory Makers See Signs
By Dan Nystedt
Ever since the DRAM market began sinking in Q3 last year, pundits forecast an end to bad times on a monthly basis. Their key argument: demand for memory chips would return as excess inventory was burned off -- but they were wrong. Demand continued to plummet, and with it, the market price for 64-Megabit (MB) and 128-MB DRAM memory chips.
But as memory chip prices continue to break record lows, DRAM stocks are beginning to look attractive. Savvy investors know the second quarter is the worst for computer sales, and low DRAM prices will rise "in the third quarter as PC sales pick up in July and August on back-to-school demand," says Calvin Chang, semiconductor analyst for JP Morgan Chase, in Taipei.
The price of 128-MB industry standard DRAM plunged below $3 on the Asian DRAM Spot Market last Friday, and ended the day there for the first time. According to the DRAM Exchange Web site, the price of 128-MB DRAM traded in the $2.70 and $2.91 range per unit, while 64-MB DRAM also dropped to a new record low, trading at around $1.49 per unit.
Since most makers in Taiwan cover their costs on 128-MB DRAM at about $4.50 per chip, and with 64-MB chips at $3.00, all of them are operating at a loss. Total losses could run to a tune of 1 billion New Taiwan dollars ($298 million), collectively this quarter, according to JP Morgan Chase.
Taiwan's memory chipmakers, which accounted for 11% of world demand last year, migrated en masse to 128-MB DRAM in an attempt to escape the low prices of their main product, 64-MB chips last year. According to Mosel Vitelic Inc. vice president Thomas Chang, once companies gained experience with 128-MB chips, yield increased and flooded the market again -- lowering prices on 128-MB chips.
"The rate of memory price decline is running faster than the rate DRAM makers can come down in cost," says JP Morgan Chase's Chang.
And the stocks of Taiwanese DRAM makers have been feeling the pain. Share prices for most memory chipmakers here began to rally early last week on belief their woes would soon end. Friday's DRAM market report changed that. Winbond Electronics Corp., Mosel Vitelic, ProMOS Technologies Inc., Nanya Technology, Powerchip and Vanguard all gave back their early gains and then some, but analysts say the carnage should not continue. All of the firms are at or near their lows this year.
Winbond, long considered one of Taiwan's top DRAM makers due to its technology-sharing partnerships with Toshiba and other top Japanese firms, was up 11% last week until the DRAM spot price began to go. The company's stock has already sunk to NT$29.8 yesterday, back to where it started its ascent.
At least one company, ProMOS, a joint venture between Mosel Vitelic and Siemens chip spin-off Infineon, is taking the downturn as an opportunity to expand into new manufacturing processes.
The firm will be among the first Taiwanese DRAM makers to use manufacturing technology smaller than 0.17-micron. ProMOS pushed the opening date of its 12-inch wafer fab back two months to December of this year, and said volume runs using the smaller 0.14 micron process will begin in the first quarter of 2002. The new fab will produce 128-MB and 256-MB DRAM.
Long-term technology plans are not helping ProMOS in the short term, however, as its financial situation deteriorated along with the DRAM market. The company began lowering profit forecasts last December, for 2000, and hasn't looked back since. Recent estimates are all bearish.
The company hit hardest by investors here has been Nanya. A new contract with IBM earlier this year appeared to give the company a boost. With the U.S. technology giant as a contract partner and technology transfer agent, how could Nanya go wrong?
A first-quarter loss of $50 million left investors very cold, and they vented by dumping Nanya stock. The firm's share price began the year at NT$19 per share. After flirting with NT$40 in late March, it headed straight back down, finishing yesterday at NT$23.20 per share.
In the near term, Taiwan manufacturers hope for Hynix Electronics' quick death. Formerly Hyundai Electronics, the giant Korean DRAM maker appeared to be gasping its last before last minute credit guarantees from the South Korean government put the company back on life support. If the company does go, DRAM chips would flood the market initially as creditors sold off assets, but over time, prices would stabilize.
DRAM memory chips are used in nearly every kind of electronic device, but over 50% of all chips produced go into personal computers. With Taiwanese motherboard makers predicting a 10-15% drop in month-on-month sales due to sluggish computer demand, the likelihood of a DRAM rise in the second quarter is not in the cards. As share prices of these memory chipmakers fall to new lows, however, it would be wise to remember the third quarter is right around the corner. |
