I think 40% is too high but if memory accounts for 30% or so it puts IC sales in Q1 2005 into perspective;
if (DRAM) pricing would have declined less in Feb and March IC sales would have been even stronger
Battered memory chip makers look to better second half
Fri Apr 29, 2005 01:51 AM ET
By Jean Yoon
SEOUL, April 29 (Reuters) - Memory chip makers, battered in the first quarter as prices sunk by 40 percent, should fare better in the second half as seasonal demand lifts sales and manufacturing bottlenecks limit supply.
Industry players, led by Samsung Electronics (005930.KS: Quote, Profile, Research) , are switching capacity from lower-end DRAM to flash memory chips used in hot-selling digital cameras and music players.
That, combined with the industry migration to next generation technology, should keep supplies tighter after a glut squeezed earnings at global chipmakers in the first quarter.
Memory chips, mostly made in Asia, account for roughly one-third of the semiconductor industry. DRAM (dynamic random access memory) chips, the most common type of memory, are mostly used in personal computers.
Samsung holds 29 percent of the global DRAM market, followed by Hynix Semiconductor Inc.'s (000660.KS: Quote, Profile, Research) 16.4 percent and Micron Technology's (MU.N: Quote, Profile, Research) 16, according to research firm iSuppli Japan.
The price of 256-megabit DDR (double data rate) DRAM chips, the industry standard, now stands at $2.40 per unit, according to microchip broker DRAMexchange.com, against $4.10 at the start of this year.
Most DRAM makers break even at $3.
"We are near the bottom now. We expect prices to remain around the current level in the second quarter and rebound in the second half on seasonally stronger demand," said a semiconductor trader at Samsung.
"Back-to-school PC demand will kick in in July to August and pre-Christmas demand from mid-October," he added.
LIMPING ALONG
Several memory chip makers this month reported sharp drops in profits for the March quarter, and signalled a limited improvement for the second quarter.
Daiwa Institute of Research expects prices may fall a further 10 percent from current levels before recovering to around $3 by late in the third quarter.
Taiwan-based Powerchip (5346.TWO: Quote, Profile, Research) , Taiwan's largest maker of memory chips, said last week first-quarter profits fell by a third as chip prices tumbled on growing supply and weaker-than-expected demand.
Chairman Frank Huang said he expected prices to recover in the second half as PC makers begin to buy memory for the year-end boom in electronics sales.
Fifth-ranked Elpida Memory Inc. (6665.T: Quote, Profile, Research) said its average DRAM selling prices were likely to fall by about 15 percent in the three months through June from the previous quarter, and gave a cautious outlook.
"We need to wait until May or June to see if the DRAM market is really on a recovery path," said Elpida Chief Executive Yukio Sakamoto.
CIRCUIT SWITCH
Samsung Electronics is expected by analysts to shift DRAM capacity to flash to meet heavy demand, especially from Apple Computer Inc. (AAPL.O: Quote, Profile, Research) , which uses Samsung's flash memory in its iPOD Shuffle music player.
Chip makers are also trying to move to chip circuitry widths of 90 nanometres, or billionths of a metre, as the advanced design rule provides smaller-sized chips at lower unit costs.
Newer-generation chips offer faster speeds for data transfer and lower power consumption.
Yoshihisa Toyosaki, president of iSuppli, said DRAM prices were expected to rise to $3.60 in the third quarter and $4.00 in the fourth.
"Samsung already took action about a quarter ago and started boosting flash memory output at their lines designed for both DRAM and flash," he said. "DRAM supplies will naturally get tight in the third or fourth quarter, boosting prices."
(Additional reporting by Michael Kramer in Taipei, Kiyoshi Takenaka in Tokyo and Kim Miyoung in Seoul)
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