Upgrade fears for Taiwan chips

Taiwan’s D-Ram memory chip industry, the world’s second-biggest, may not be able to take full advantage of improving market prospects in spite of signs that the industry may be emerging from a three-year slump, analysts and executives say.

There are fears over whether Taiwanese D-Ram companies can raise enough cash to upgrade their factories to 50-nanometer technology, analysts say.

D-Ram chips are an essential part of every computer, but overexpansion by its producers led to a sharp fall in price for the commodity-like memory chips and accumulated losses of $15bn over the past three years.

The economic crisis deepened the industry’s woes, resulting in the bankruptcy this year of Germany’s Qimonda, the only leading European D-Ram supplier.

Taiwan’s Nanya Technology, the world’s fifth-largest supplier, said last week that it had lost T$6.5bn ($198m) in the second quarter. But this was 10 per cent less than its losses a year ago and came largely thanks to a 30 per cent quarter-on-quarter rise in D-Ram prices in the second quarter.

Analysts say this price increase underpins hope that the worst may be
over for D-Ram makers. Kim Nam Hyung, chief analyst for ISuppli, said: “The global D-Ram industry is set for a sustainable recovery that will extend into the fourth quarter and pave the way for a robust annual increase in 2010.”

ISuppli has upgraded its short-term outlook for D-Ram suppliers to positive for the first time since the financial crisis. Computer makers are increasingly using DDR3, a more advanced, less power-consuming type of D-Ram.

Pai Pei-lin, vice-president of Nanya, said: “There will likely be shortage of DDR3 in the third quarter due to strong demand from servers and newly launched notebooks.”

But whether or not Taiwanese D-Ram companies can take advantage of this shortage depends largely on their ability to raise cash for factory upgrades.

Frank Wang, an analyst at Morgan Stanley, said the transition to 50-nanometer technology “will differentiate the haves from the have-nots depending on external funding capability”. Nanya and Powerchip, Taiwan’s biggest D-ram manufacturer, recently said they would apply for government investment after the economics ministry said it planned to invest up to T$30bn in one or two local D-Ram companies.

Powerchip is likely to work closely with Taiwan Memory Company (TMC), the government-established vehicle for industry consolidation .

ProMos, a smaller Taiwanese D-ram company that was on the brink of bankruptcy this year, said it was open to co-operating with TMC.

Mr Wang said that, of Taiwan’s six D-Ram companies, only Inotera, Nanya’s sister company, was likely to raise enough money by themselves without having to rely on the government.