Memory market in meltdown

 

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By Reuters

Posted on 25 Jul 2007 at 14:47

Memory manufacturers around the world reported disastrous second-quarter results as they failed to combat some of the biggest price drops in the sector.

Qimonda, the world's third-biggest maker of memory chips by sales, blamed a quarterly operating loss twice as deep as expected on price declines of as much as 60% for standard computer memory chips.

STMicroelectronics, Europe's biggest chipmaker, said high restructuring charges were the main cause of its swing to a net loss in the quarter.

The poor results confirmed a trend first reported by industry leader Samsung two weeks ago when it posted its worst quarterly profit in four years on steep declines in computer memory chip prices.

Qimonda and STMicro put on a brave face, pointing to a seasonal upturn expected after the summer holidays and before Christmas.

But Qimonda declined to give any price, sales or profit forecasts after it shocked markets with its quarterly operating loss and STMicro cut its 2007 industry sales growth forecast to less than 2%.

Qimonda Chief Executive Kin Wah Loh told analysts he had done his best to make adjustments to deal with falling prices but had never seen such a severe swing, even in the worst times just after the last technology bubble burst. "We have not seen this dramatic a price drop since 2001, which was the worst since 1997. This is the strongest we've ever seen even compared to those bad periods," he said.

Over-optimistic demand

Perennially optimistic chipmakers seem unable to stop overestimating demand from their customers in the computer, consumer electronic and telecoms industries, leading to a glut in the market and tumbling prices.

Many pin their hopes on the latest craze they believe will drive sales, such as Vista or Apple's iPhone. But Vista has been a disappointment, failing to stimulate much demand for computers or extra memory to run the system, and the iPhone alone will not rescue the flash memory chip market.

Chipmakers who have the capacity to produce both standard DRAM memory for computers and NAND flash memory for music players, digital cameras and mobile phones, have tried to stay ahead of the game by switching from one to the other depending on where they anticipate strongest demand.

Korean chipmakers Samsung and Hynix, for example, began shifting their capacity from DRAM to high-margin NAND a few months ago, which will soon help DRAM prices to recover as oversupply eases.

Such moves, however, will only temporarily shift price pressure from one part of the memory chip market to another.

Technology market research group iSuppli cautiously upgraded its near-term view of the DRAM market to "Neutral" from "Negative" last week after DRAM chip prices improved for the first time in six months.

But iSuppli, which is one of the most optimistic industry research groups with a 6% 2007 growth forecast for the semiconductor sector, said it was not ready to declare a recovery in the DRAM market.

It also said it believed the current rally in NAND prices was driven only by reduced supply growth, not demand, and so would be short-lived.