Taiwanese DRAM makers cut capital spending

DRAM makers are scaling back their capital spending plans in a bid to shore up the market after a sharp decline in DRAM prices

sharp decline in DRAM prices has caused some Taiwanese DRAM makers to cut back on their capital spending plans this year in a bid to shore up the market.

"Right now, there is a huge supply in the market," said Charles Kau, president of Inotera, during a news conference in Kuei Shan, Taiwan.

Prices have dropped so much that it's hard for DRAM companies to make money. On Tuesday, Inotera Memories reported an NT$3.7 billion ($114.3 million) loss for the fourth quarter of 2007. Nanya Technology reported an even larger loss, of NT$8.2 billion, for the same time period.

To combat falling prices, Inotera slashed its 2007 spending and will spend far less on new factories and production lines this year. The company spent NT$44 billion last year to install production lines at a new factory in Taiwan. But the spending figure ended up less than the NT$51.4 billion it had proposed to spend earlier in the year. For 2008, Inotera's spending will drop even more, to NT$30 billion, as it refits production lines with newer technology that makes chips smaller and more powerful.

Nanya Technology reduced its 2007 capital spending to NT$47 billion from a projected NT$60 billion. The company started building a new state-of-the-art factory last year, a plant that will increase production throughout this year. In 2008, Nanya plans to spend NT$40 billion.

"This year, capital spending discipline is very important," said Kau. Spending less can help companies shore up their finances. DRAM factories are expensive, costing around US$2.2 billion or more each, depending on the size and projected output. Companies in the industry depend on strong cash flow as well as loans to pay for the factories.

A glut has sent DRAM chip prices tumbling. The contract price of 1Gb DDR2 chips that run at 667MHz fell to $1.81 each as of Jan. 21, according to DRAMeXchange Technology, which operates a clearinghouse for the chips. Prices of the chips were at $3 at the start of October, when the current price slump hit.

Executives at Inotera and Nanya Technology forecast a rebound in prices in the second half of this year, as PC demand rebounds.

"Currently, we're optimistic about the second half because our customers are optimistic about the second half," said Pai Pei-lin, a vice president at Nanya Technology. He said he hopes the new service pack for Microsoft's Vista OS, which is due out shortly, will further spur PC buying and help the DRAM industry rebound. More DRAM chips go into PCs than any other product.