July 21, 2011 5:24 pm
By Robin Kwong in Taipei
Taiwanese D-Ram chipmakers are struggling to transform as falling
chip prices once again threaten the $40.3bn industry, which plays a key role in the
global supply chain for PCs and game consoles.
After a brief revival last year, PC D-Ram prices have plunged 70 per cent from
$2.72 for 1 gigabyte of memory in May last year to $0.84 in the first half of this month,
according to DRAMeXchange. The fall has been driven by global economic
woes stifling consumer demandcoupled with bloated inventory levels after a build-up in
the wake of the March Japanese earthquake.
Pai Pei-lin, Nanya vice-president, warns that prices will probably
keep falling through August, noting that they are approaching cash costs
for most D-Ram makers. Even demand for chips used in smartphones, which had
been doing better, is slowing, he says.
The dramatic price fall, which echoes a collapse in late 2008 after
the financial crisis, highlights the risk related to the cyclical nature of PC D-Ram,
a highly commoditised product that is the biggest-selling type of D-Ram chip.
“Basically the past three years have not been good times for D-Ram,”
says Charles Kau, a Nanya board member and president of Inotera, a memory
The 2008 financial crisis shook up the industry. Global production capacity
or manufacturers of other, niche D-Ram products.
partly because it was already more diversified than other chipmakers and
partly because of its parent’s financial strength. The South Korean
company is now the dominant group, commanding about half the
global market and a clear lead in technology.
of global production, will not be immune to the current downturn.
South Korea’s Hynix, the world’s second-largest memory chipmaker by
sales, blamed lower chip prices for a 34.2 per cent drop in second-quarter
net profit and said it expected conditions to remain “challenging”
the rest of the year.
Analysts expect detailed results due at the end of the month to show that
operating profits at Samsung’s chip division in the second quarter
fell by a third from a year ago.
With only one year of respite since the last slump, “most D-Ram manufacturers’
financial status and cash positions have not recovered,” wrote analysts
at DRAMeXchange recently.
This means more fundamental changes are probably in store. Instead of
focusing on the commoditised PC D-Ram market, Nanya and Inotera
are looking to sell chips for mobile devices and servers, which require
more customisation and higher qualifications but are sold at higher prices.
But analysts remain cautious. Even though server and mobile D-Ram chips
command a premium to PC D-Ram, “prices for both are falling as well”,
says M.S. Hwang, analyst at Credit Suisse.
Additional reporting by Song Jung-a in Seoul
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