January 26, 2009 / 2:33 PM / 12 years ago

REFILE-UPDATE 1-Qimonda troubles to ease some DRAM market pain

(Corrects to add Reuters instrument code for Qimonda in 1st paragraph) (Releads, adds comments)

By Tarmo Virki, European technology correspondent

HELSINKI, Jan 26 (Reuters) - The insolvancy of Germany’s Qimonda QMNDQ.PK will offer some relief for the $25 billion DRAM chips market, which is still set to shrink in 2009 for the third year in a row, analysts said on Monday.

Makers of dynamic random access memory (DRAM) have been mired in their worst-ever downturn for more than a year, with all major players reporting losses on their operations due to a large oversupply of the chips used mainly in personal computers.

The world’s fifth-largest DRAM vendor Qimonda — which controls about 10 percent of the market — on Friday became the first vendor in its industry to file for insolvency as a result of huge industry price declines and the global financing squeeze. [ID:nLN168875]

Analysts said the filing was likely to help pricing pressure on the struggling sector.

“Other DRAM makers will likely split Qimonda’s market share, and since all companies, including Samsung, are in the red, they would not likely cut prices further to grab market share,” said Mizuho Investors Securities analyst Yuichi Ishida.

“But demand will likely be even weaker in 2009, so that would be more of the issue.”

Electronic components research firm DRAMeXchange said prices of key DRAM chips could rise to vendors’ cash cost levels, helped by Qimonda’s insolvency filing.

Prices for DDR2 1Gb chips, used as the main memory chip in many personal computers, could rise from below $1 currently to $1.20-$1.50, which is the cash cost for vendors, said DRAMeXchange, a leading price-tracking organisation for the industry.

The research firm said there was “high possibility” for a 10-percent cut in the global supply of DRAM chips as long as other vendors stick to their capacity cut plans.

“Output cuts have helped the market condition to turn a little bit better and it will probably get better some more towards February, but for the whole of 2009, there is a chance that PC demand will stall,” Mizuho Investors’ Ishida said.

“The downturn has bottomed out for now, but it does not look like the market condition will keep getting better.”

Also on Friday, Samsung Electronics (005930.KS), the world’s largest DRAM maker, posted its first-ever quarterly loss in large part due to its DRAM business. [ID:nSEO164308]

According to preliminary estimates from research firm iSuppli, global DRAM revenue fell by 19.8 percent in 2008 to $25.2 billion, the second year of decline, and is expected to drop another 4.3 percent this year.

“Qimonda’s insolvency means global (2009) DRAM bit shipment growth now is expected to be less than the 30 percent level, down from iSuppli’s previous forecast of 35 percent,” Nam Hyung Kim, chief analyst for memory at iSuppli, said in a statement.

“This will reduce supply growth, helping to stabilise pricing, and helping to mitigate the oversupply-driven downturn,” Kim said.

Kim said the potential impact of the Qimonda insolvency will come in the graphics and server chip markets, as in the third quarter of 2008 it accounted for 26 percent of shipments of graphic DRAMs. These are used in the video subsystems in computers and consumer electronics devices, and control 15 percent to 20 percent of the global market for DRAM for servers. (Additional reporting by Sachi Izumi in Tokyo; editing by Sharon Lindores and Karen Foster)

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