Chip makers see stronger DRAM memory prices this year

Taiwan's biggest DRAM has returned to profitability for the first time in three years, and that may not be good for PC buyers

Taiwan's biggest DRAM maker, Nanya Technology, reported its first net profit in nearly three years on Wednesday, as DRAM prices rose and demand remained strong in the fourth quarter of last year.

But the company's fortunes came at a cost to anyone buying a new PC. The price of mainstream DRAM chips posted a strong rebound last year after hitting multi-year lows, rising 266 percent, according to investment bank Credit Suisse.

DRAM costs are often passed on to consumers and this year could become a bigger factor in PC prices. Market researchers forecast that DRAM prices will likely remain stable in the first half of this year and rise in the second half due to a strong PC market. Most DRAM chips go into PCs.

Nanya Technology said its fourth quarter net profit was NT$211 million (US$6.64 million), compared to an NT$11.89 billion loss in the same quarter last year. Revenue rose to NT$16.69 billion from NT$6.13 billion last year.

The last time Nanya reported a net profit was in the first quarter of 2007, at NT$3.29 billion.

The company's last profitable quarter was also the last for other DRAM makers as DRAM prices plunged in 2007 due to over-investment in new factories when loans were easy to get. Companies in the industry paid the price with a two-year DRAM glut that sent chip prices down well below profitable levels. Over the same time, PC buyers have become used to getting more for their money with DRAM, a trend likely to slow this year.

This year, demand for a new mainstream DRAM chip, DDR3 (double data rate, third generation), is keeping prices up, as is demand for new PCs, said Pai Pei-Lin, a vice president at Nanya Technology, at a news conference Wednesday. Consolidation in the industry has also helped. Germany's Qimonda AG filed for bankruptcy last year and other companies were forced to mothball some production lines as they laid off staff.

Pai expects Windows 7 to be a big driver of PC demand this year, and said corporations have already started evaluating how to replace aging fleets of PCs. Analysts have talked about the corporate replacement cycle for years as a driver of DRAM and PC sales growth, the idea that companies have to replace PCs to keep up with the times. But for years companies have held onto older PCs, armed with Windows XP. Microsoft Windows Vista was marketed as the next major driver of the corporate replacement cycle a few years ago, but it failed to impress users.

Windows 7 is different, Pai said. People are really happy with the OS and probably won't even wait for Service Pack 1, a major update to the OS, to start buying PCs, he added.

Market researchers have taken a similar view. Strong demand for new desktops and laptops will spur DRAM prices in the second half of this year, according to DRAMeXchange Technology, which operates a clearinghouse for DRAM chips.

Jenny Lai, analyst at CLSA Asia-Pacific Markets, says PC demand was stronger than expected in the fourth quarter of last year and remains stronger than normal now due to brisk demand for laptop PCs with new Intel chips inside, and demand related to the Lunar New Year holiday in Asia.

She now expects PC shipments to grow 14 percent year-on-year this year, 4 percentage points more than her previous forecast.

DRAMeXchange predicts prices for DDR3 and older DDR2 (second generation) could pull back 10 or 20 percent in the first quarter, normally a slow season for PC demand, and remain subdued in the second quarter. After that, prices will increase.

"DRAM vendors will have a great opportunity to remain profitable for the whole year," the company said in a research note.

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