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Powerchip, Taiwan's largest memory chipmaker, boosted hopes of a rebound in D-Ram prices on Tuesday with an optimistic forecast for the second half of the year.

After reporting a steep drop in second-quarter profits on plummeting memory chip prices, the company said it expected its average selling prices to rebound by 22 per cent quarter-on-quarter in the three months to September 30.

“We expect average selling prices to climb back to about US$3 from US$2.46 in the second quarter,” said Brian Shieh, president.

The forecast indicates that Powerchip is more optimistic about the commodity D-Ram market than some of its peers. Hynix, the world's second-largest memory chipmaker, said last week it expected a single-digit percentage rise in D-Ram prices in the third quarter. Powerchip's net profit in the three months to June 30 fell to T$851.6m ($26.7m) from T$5.36bn a year earlier. Analysts believe Powerchip is the island's only memory chipmaker that has been able to remain profitable.

But the 84 per cent profit drop compares with 46 per cent less in quarterly earnings reported by Samsung, the world's largest memory chipmaker, and a 62 per cent drop reported by Hynix.

This gap highlights how successful the two Korean companies have become in creating a buffer against price swings by switching manufacturing capacity to Nand flash, a rewritable type of flash memory used in digital consumer products.

Frank Huang, Powerchip chairman, said his company was trying hard to emulate its Korean rivals' success but would need at least another year before being able to switch to Nand flash production in times of D-Ram price drops.

“We clearly envy Samsung for creating this seesaw which protects them so well in this volatile industry,” he said. “We and other Taiwanese chipmakers will definitely be part of this game but we are not there yet.”

Analysts predict that Nand flash prices will slide as a result of a number of chipmakers switching output to this segment. Powerchip's intention to take the same path make such a slide even more likely and suggests that the switching strategy which has worked well for industry leaders so far may lose its effect once everybody follows it.

Mr Huang said Samsung, which according to analysts has allocated 40 per cent of its wafers to Nand flash, was trying to drive these prices down to discourage rivals from following its strategy.

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