DRAM prices soar in Asia trading

Chip prices likely to rise continue as Qimonda bankruptcy causes waves in the supply chain.

DRAM chip prices soared in Asia on Monday after traders returned from the week long Lunar New Year holiday in China and Taiwan and faced up to supply chain concerns after chip maker Qimonda's bankruptcy filing.

The price of the benchmark chips, 1-gigabit DDR2 (double data rate, second generation) DRAM chips that run at 667MHz, rose 27 percent to US$1.08 each, DRAMeXchange Technology reported at 6 p.m. in Taipei. DRAMeXchange runs an online chip clearinghouse.

In the short term, prices will likely continue to rise because Qimonda's bankruptcy will cause waves in the supply chain, according to analysts at Gartner. Other DRAM makers could also file for bankruptcy, causing further price rises. Anyone who needs to buy more DRAM might want to wait, though, because in the longer term prices will likely fall again: Even without Qimonda, there is still large oversupply in the DRAM market.

Qimonda filed for bankruptcy protection in Germany just before the Lunar New Year holiday after it failed to secure needed cash to continue operations. The company continues to operate, but two partners in Taiwan, Inotera Memories and Winbond Electronics, have refused to ship any more chips to the company because Qimonda already owes them both millions of dollars.

The two Taiwanese companies accounted for around half of Qimonda's DRAM output through technology and supply agreements.

Last week, DRAM prices climbed as much as 16 percent in North America and Europe in response to Qimonda's bankruptcy filing, but Asian traders were already on holiday. The world's main spot market for DRAM chips is in Asia due to the huge number of desktop and laptop computers that are assembled in the region, mainly at factories in China.

Around three-fourths of all DRAM go into PCs.

DRAM chips are produced in such heavy volume that a spot market exists, where traders buy and sell them like commodities such as oil. DRAM prices tend to spike and drop in a manner similar to the way a disrupted pipeline or fighting in a sensitive area may cause oil prices to move.

Qimonda's bankruptcy filing was the latest shock to the DRAM market, but more such filings could be on the horizon because other chip makers are facing loan or bond repayments.

Taiwan's ProMOS Technologies, for example, must pay around US$330 million on a bond by the middle of February. The company has applied to the Taiwan government for funds to help pay the debt and has said it does not yet have the cash on hand to meet the obligation.

Over the longer term, DRAM prices are likely to trend downward again, according to market researcher IDC.

The DRAM market faces such a severe oversupply that even if Qimonda stopped production immediately, which it has not, there is plenty of DRAM available to meet all needs, IDC said in a report last week.

DRAM makers also face falling demand for consumer electronics caused by the global economic downturn.

IDC predicts the global DRAM market will shrink 12.1 percent this year to US$22.84 billion because of oversupply and bloated inventories. Revenue in the market declined 17 percent last year to $25.98 billion.

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Dan Nystedt

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