WHATS THIS ABOUT?
DRAM doubts still linger
MEMORY MARKET: If spot prices continue to sink further, Taiwan's second-tier
DRAM makers may be forced to temporarily cut back output or halt production
By Michael Logan
STAFF REPORTER
Dark clouds hanging over the DRAM industry aren't likely to clear up until late in the
first half of next year, analysts forecast.
Computer makers are still working off stores of memory chips stockpiled earlier this
year for a drought that never materialized. In addition, demand for PCs has been
weak, and a slowdown in global economic growth will likely keep sales subdued.
Those two factors together spell trouble for the DRAM industry's leading weather
barometer. At US$3.39, the spot price for 64-megabit 8x8 DRAM has fallen 64
percent since January.
Analysts don't expect a rebound anytime soon.
"If we're talking about a rally, I believe it will happen in the second half of next year,"
said Andrew Teng, an analyst at Taiwan International Securities.
The weather could get worse before it gets better. Jovi Chen, who covers
semiconductor companies for China Securities, says memory chip spot prices could
sink as low as US$2.50.
Should prices drop that far, many of Taiwan's second-tier DRAM makers would be
forced to temporarily cut back output or halt production.
At US$2.50, companies such as Nan Ya Technology («n¨È), Powerchip
Semiconductor (¤O´¹¥b¾ÉÅé) and Vanguard (¥@¬É¥ý¶i) would lose money, he
said.
But there is a silver lining. As second-tier companies take shelter from the storm, "that
will hold back supply and give prices a chance to go back up," Chen said.
For now, a price of just under US$4 allows a majority of Taiwan's DRAM
manufacturers to keep their heads above water. "At this level, most companies are at
their break-even point," Chen said.
False forecast
The outlook for the DRAM industry wasn't always expected to be this gloomy.
Earlier this year, industry watchers forecast a tightening in DRAM supply for the
fourth quarter, with spot prices as high as US$10.
But as a result, computer makers took precautions, stockpiling enough provisions to
see them through the expected drought.
"You had every Tom, Dick and Harry preparing for a shortage," said Dan Heyler,
semiconductor analyst at Merrill Lynch.
In addition, Heyler said, to save money, PC makers reconfigured their products to
use less bits of memory. That also crimped DRAM demand.
Now that spot prices have fallen to never-imagined lows, so too have the shares of
DRAM makers, as one after another reports lower-than-expected monthly sales.
Winbond (µØ¨¹¹q¤l) is down 71.6 percent off its 52-week high, closing at NT$29.50
on Saturday. Nan Ya is off 71.6 percent at NT$21.70, Powerchip off 72.7 percent
at NT$19.50, Vanguard off 71.6 percent at NT$17.60 and ProMOS (Z¼w¬ì§Þ)
off 75.8 percent at NT$28.80.
In Winbond's case, the surprising turn of events has forced the company to scale
back its capacity expansion plans. Winbond said last week that it would only start
construction of one 12-inch wafer fab next year instead of two.
Rays of hope
Despite the poor outlook, there are some rays of hope, analysts say.
"DDR is one avenue out for DRAM makers," Teng said, referring to the new
technology standard that is expected to boost the performance of memory chips.
"Most people already know that DRAM prices won't be good," Teng said, so they'll
be shifting to products that "deliver a higher premium."
DDR is one of those products, as "the consensus is that production costs for DDR
will be about the same as standard DRAM."
"Also, we're looking at Microsoft Windows 2000. If that product is successful, we
think that will help stimulate demand," Teng said.
The latest version of Windows requires a muscular 128 bits of memory, instead of the
more common 64 bits. If corporate customers upgrade to Windows 2000 in large
numbers next year, DRAM demand could pick up.
What's more, 128-bit memory chips have higher margins than their 64-bit
counterparts.
Other factors that could help stimulate demand include new processors from
CPU-makers AMD and Intel.
DRAM makers also say that demand for memory next year won't be led as much by
PCs, as sales of network servers, communication products, Internet appliances and
consumer electronics grow.
"They'll require DRAM. More and more we'll see demand from the IA side," Teng
said. "But it will take a while."
Chen said the non-PC segment can't be counted on to come to the DRAM industry's
rescue, as those products account for little of overall demand.
Furthermore, he said, like personal computers, consumer products "are still
threatened by the global economic slowdown."
Some memory makers are attempting to call attention to the fact that they do more
than just make DRAM chips.
Winbond said it expects strong sales growth for its LCD-drivers, network game chips
and communications chips next year.
Powerchip says DRAM will account for 50 percent of its output next year, while
other memory chips and foundry work will make up the rest.
Vanguard, the misguided effort by TSMC's Morris Chang (±i©¾¿Ñ) to break into
the DRAM industry, says it expects contract foundry work to account for 70 percent
of its output next year, up from 65 percent today. |
