<BofA Analyst cites VSEA's exposure to DRAM>
Exposure to DRAM might not be so terrible; see this review of spending plans from yesterday's WSJ:
"Analysts say, however, capital-spending growth at DRAM makers will slow relative to 2004, in line with an anticipated oversupply of chips amid lower end-demand. But while the rate of spending growth will be slower, "DRAM makers are starting 2005 with a lot of money, so capital spending will be as much as that spent in 2004," said Young Park, an analyst at LG Investment & Securities in Seoul.
Research firm iSuppli Corp. of El Segundo, Calif., projects growth in capital spending at 12 of the major DRAM makers to slow to 20% in 2005 to reach $12.6 billion, up from $10.5 billion during 2004 when their capital spending rose 65%.
"We think 2005 will be the peak for capital spending," said Chang Won Chung, an analyst at Daewoo Securities in Seoul. "If DRAM makers think that the market is not good and they cut back, their cost structure won't be competitive and they may be forced to shut down their business in the next downturn."
DRAM makers need to churn out as many chips as possible, and at a lower cost, to stay ahead in the capital-intensive industry. Intensive capital spending during past downturns has enabled companies such as South Korean Samsung Electronics Co., the world's major DRAM maker, to stay ahead of the pack.
"Since DRAM average selling price is estimated to decline by 31% in 2005, suppliers' cost structure will be the key factor" in staying ahead, said Nam Hyung Kim, principal memory analyst at iSuppli. Industry analysts say much of the capital expenditure earmarked for 2005 will be used to upgrade or build chip plants to utilize 12-inch wafers, as well as upgrade process technology to 0.11 micron or less.
The 12-inch wafers allow more chips to be produced from a silicon wafer, thereby reducing the cost per chip. A chip's transistor components and the spaces between them are measured in microns. The smaller and more closely transistors can be packed together, the more powerful the chip.
Analysts say adopting advanced technologies will become increasingly important in 2005 as the industry shifts to producing speedier DDR2 chips that support Intel Corp.'s more-advanced chip sets for notebook computers.
Woosik Chu, senior vice president of investor relations at Samsung, said capital spending in 2005 for Samsung's semiconductor business will be similar to 2004, without providing detailed figures. "There won't be a cutback," he said.
For 2004, Samsung earmarked spending of 5.77 trillion won ($5.57 billion) for its semiconductor business, of which 4.92 trillion won was allocated for memory chips including DRAM.
ISuppli estimates Samsung's total capital spending for DRAM this year will reach $3.2 billion, up from about $3 billion in 2004.
Memory-chip maker Hynix Semiconductor Inc. is planning capital spending of about two trillion won in 2005, up from 1.8 trillion won in 2004. James Kim, head of investor relations at Hynix, said about 40% of the spending will be allocated for 12-inch wafer production, around 20% for existing eight-inch production upgrades, and the remainder for testing equipment to make DDR2 chips." |
