Asia DRAM Report: DRAM Makers Boost Flash Memory Output
sg.biz.yahoo.com
By Yun-Hee Kim
Of DOW JONES NEWSWIRES
SEOUL (Dow Jones)--Major computer memory-chip makers are rapidly shifting their production to make flash memory - a move that should help companies with an early lead - such as Samsung Electronics Co. (005930.SE) - reap better-than-expected earnings in the traditionally weak first quarter despite a steep decline in DRAM prices.
Thanks to some similaries between the NAND flash chips found in digital gadgets like MP3 music players and the DRAM chips widely used in personal computers, DRAM makers can covert their existing production lines to produce flash chips without significant new capital investment.
NAND, dubbed "nonvolatile" for their ability to retain data even when they lack a constant supply of power, is one of the two main types of flash memory currently in wide use. The growing popularity of digital consumer electronics has led to steady demand and stable prices for NAND chips - making them a very appealing product for DRAM makers struggling to maintain decent profit margins.
Top-tier DRAM makers such as Korea's Samsung and Hynix Semiconductor Inc. (000660.SE), and U.S.-based Micron Technology Inc. (MU), are boosting their output of NAND more aggressively this year.
"We've seen demand pick up quite a bit in the last couple of months," said Michael Sadler, vice president of worldwide sales at Micron. "Prices have actually increased, which is different from what is happening in the DRAM market."
DRAM prices have fallen nearly 40% since the beginning of this year due to weak demand for PCs following a strong fourth quarter spanning the Thanksgiving and Christmas holiday shopping seasons. In comparison, prices of NAND flash have remained stable throughout the first three months of this year.
The average spot price of the most widely used DRAM, 256 megabit double data rate chips that run at 400 megahertz, or DDR-400, fetched $2.49 each early Monday, down sharply from $4.04 at the beginning of this year, according to DRAMeXchange, an online clearinghouse for chips. By contrast, the average spot price of 512-megabit NAND flash chips traded at $4.62 early Monday, from $4.74 at the beginning of this year.
Samsung's NAND flash shipment growth in the first quarter is estimated to be more than 20%, much higher than the 12% the company had expected previously, according to Woosik Chu, senior vice president for investor relations. The strong shipment growth, thanks to ample demand, will lead to a "very good" first quarter for the semiconductor business as a whole, despite a decline in DRAM prices, he said.
Samsung is slated to release its first-quarter earnings on April 15.
"With the DRAM market being a little slow due to seasonality in the first half, there is always room for some shift to NAND from DRAM," Chu said.
Other chipmakers are taking note of Samsung's production shift.
"All the DRAM players of any size...they almost have to be in the NAND flash business in order to generate the leverage on R&D (research and development) and capital dollars," Micron's Sadler said.
He said given the stronger demand for NAND currently, Micron will be increasing its DRAM output at a "more moderate rate" in the next several quarters.
At Hynix, the world's No. 2 DRAM maker, NAND output currently is only 10% of total memory output, while DRAM makes up 90%, said a company official. By the end of this year, Hynix aims to boost NAND output to 15%, while reducing its DRAM output to 85%.
Germany's Infineon Technologies AG (IFX) has begun mass production of 512-megabit NAND flash chips "to a reasonable level for our technology and product learning," company spokeswoman Karin Braeckle said. "The further ramp-up will depend on our progress in these development areas and the development of the flash market itself," she added.
U.S. market researcher iSuppli Corp. expects the global NAND market to grow 8% this year to $7.17 billion, while it projects the DRAM market to grow at a much slower 2% rate to $27.03 billion from 2004.
Nam Hyung Kim, principal analyst for memory at iSuppli said Samsung allocates more than 40% of its wafers - the silicon that chips are made out of - to the production of NAND flash.
"You can simple imagine the consequence if Samsung uses its NAND fab for DRAM - it will be a disaster," he said.
Analysts say as more and more DRAM suppliers boost their production of NAND, this will help reduce the overall DRAM output, resulting in a rise in worldwide DRAM revenue. That should help alleviate concerns among Taiwanese companies such as ProMOS Technologies Inc. (5387.OT) and Powerchip Semiconductor Corp. (5346.OT) which rely heavily on DRAM sales. Taiwan's DRAM makers haven't shifted to producing flash memory chips yet.
Last month, Merrill Lynch downgraded Hynix and Powerchip to "neutral" from "buy," due to a more conservative outlook for DRAM prices and their high exposure to the volatile DRAM business.
"Taiwanese companies are not ready to produce NAND so their only choice is DRAM," said Simon Woo, an analyst at Merrill Lynch in Seoul. "In that sense, Samsung will continue to enjoy strong momentum in NAND," he said. |
