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.
Nanya, Taiwan’s biggest D-Ram company by revenue, this week posted a second-quarter loss of T$7.9bn ($274m), while crosstown rival Powerchip lost T$1.21bn over the same period.
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 demand coupled 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 chip joint-venture between Nanya and Micron of the US.
The 2008 financial crisis shook up the industry. Global production capacity fell by a third as Germany’s Qimonda filed for bankruptcy, Japan’s Elpida sought state aid, and Winbond, Powerchip and PROMOS of Taiwan all largely left the PC D-Ram market to become either contract manufacturers for Elpida or manufacturers of other, niche D-Ram products.
The only company to emerge in a stronger position was Samsung Electronics, 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.
Yet even Samsung and Hynix, which together account for 70 per cent 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