The low prices have been painful for memory chip makers. Qimonda, Europe's largest DRAM maker, posted an €218 million ($301.3 million) net loss in the three months ended June 30, and the company blamed a 60 percent decline in contract DRAM prices for its performance. Micron Technology, of Boise, Idaho, reported a $225 million net loss in its most recent quarter, the result of a 35 percent decline in DRAM prices and 30 percent drop in NAND prices compared with its previous financial quarter.
Despite the weak global pricing, a handful of Taiwanese memory chip makers have announced new plans to increase factory spending. Last week, Inotera Memories raised its spending target to NT$51.4 billion (US$1.57 billion) from NT$40 billion previously, while ProMOS Technologies revised its plan to US$1.8 billion from US$1.6 billion. Powerchip Semiconductor, Taiwan's biggest DRAM maker, increased is planned capital spending to NT$71 billion from NT$57 billion.
It's not that the market problems haven't affected the Taiwanese. Powerchip posted its first loss in four years during the second quarter due to lower chip prices, but executives said they have to spend more on their production lines to upgrade to new manufacturing technology and keep up with rivals.
"The transition from 90-nanometer production technology to 70-nanometer costs a lot, around $1 billion," said Frank Huang, chairman of Powerchip, during an investors' conference on Monday. The company has to keep up with rivals.
Powerchip hopes NAND can help cushion it from weak DRAM prices. The chip maker used to produce only DRAM, but has turned to NAND as a way to diversify into a hot product that's easy to make with only minor production line tweaks. Making both kinds of chips gives it the flexibility to switch back and forth between them to catch the best prices.
In fact, NAND flash memory chip prices are on the rise currently thanks to the launch of the iPhone and copycat products that use the chips to store songs, pictures and other data. Demand for the iPhone is so strong that DRAMeXchange is worried that if Apple puts out attractive new iPods that use more Flash memory, the company could account for 25 percent of quarterly NAND flash memory output, which would send prices of the chips rocketing even higher over the next few months.
"Shortages are prevalent in the market, with smaller flash card and USB flash drive companies and distributors feeling the tightening environment first, and the tight supply is extending to even the leading customers," said market researcher Gartner, in a report on Sunday.
Still, strong NAND demand will prompt chip makers to shift production over from DRAM, helping to keep prices under control, analysts say. In addition, several companies, including ProMOS, Nanya Technology, and Rexchip Electronics, will ramp new factories up to mass production levels over the next three or four months, increasing the chip supply and curbing price increases. Powerchip plans to start construction on a new NAND flash memory factory in the fourth quarter.
The bottom line for analysts these days is that too many new memory chip factories are being built. The next few months may see higher prices as stores line their shelves for back-to-school sales and the holiday season, but later in the fourth quarter, demand for such gadgets dries up. Once the hot Christmas season passes, sales slow down. The first three months of the year are nearly always slow because shoppers have spent all their money on the holidays. Once this happens, the glut of chips on the market will return with a vengeance. That's when it will be good to be a user looking for bargains, and bad to be a company seeking profits.