Last updated: April 24, 2014 3:58 pm

Memory chip survivors stand to benefit

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An employee of SK Hynix walks past the company's logo (front C) displayed on a glass door at a branch in Seoul©AFP

After five years of brutal price competition and near-bankruptcies, global memory chipmakers – the ones that are left – can finally look forward to a more stable market.

Memory chips are needed in all smartphones, tablets and PCs, but it is a largely commoditised product that once had a lot of producers. The number of suppliers, however, has now shrunk to only three: Samsung Electronics, SK Hynix and Micron Technology.

The three companies have now gained pricing power over their customers and can expect to continue to enjoy fat margins this year, analysts say.

They expect supply to remain tight amid strong demand for mobile D-Ram memory chips used in smartphones and other mobile devices, even though production is now normalised at Hynix’s fire-hit Wuxi plant in China, which produces 15 per cent of global D-Ram chips.

As Hynix’s production recovered, average D-Ram contract prices fell 1.56 per cent in the second half of March, according to price tracking company DRAMexchange.com. This, however, was a smaller than expected fall, and with no producer showing signs of expanding capacity any time soon, prices are likely to remain stable for the rest of the year.

“Five years of the chicken game [is] over now,” said Marcello Ahn, fund manager at Quad Investment Management. “The industry’s cycle will no longer be as volatile as in the past.”

Strong D-Ram prices boosted earnings of major chipmakers, with SK Hynix on Thursday announcing that its net profit more than quadrupled to Won803bn in the January-March period, from Won178.6bn a year earlier.

The UK’s Arm Holdings said it expects demand for smartphones to pick up in the second half of the year, while US-based Micron reported better than expected results for its fiscal second quarter earlier this month.

Hynix is pinning high hopes on the introduction of 4G mobile broadband networks in China, the world’s biggest smartphone market. “Demand for mobile D-Ram . . . should pick up in the second quarter because of the release of new smartphones, China’s mobile market entering a peak season and the expansion of the LTE network in the country,” Hynix’s president Kim Joon-ho told analysts.

The company forecast D-Ram shipments to jump by 10 per cent on quarter in the April-June period, and shipments of Nand memory chips to leap by about 45 per cent, marking the sharpest quarterly jump since 2007. The expected launch of Apple’s new smartphone around September will be another factor boosting Hynix’s D-Ram sales.

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