Semis: DRAM Pricing About To Bottom

Citigroup’s Glen Yeung and several of his Asian-based colleagues have raised their ratings on five DRAM makers to Buy from Hold. On the list: Micron (MU), Qimonda (QI), Korea’s Hynix, Taiwan’s Powerchip and Japan’s Elpida.

“We expect a DRAM price bottom in the coming 6-8 weeks as spot prices approach cash costs, limiting downside to DRAM share prices,” Yeung wrote in a note this morning. He sees “tightness” in the second half.

Calling a bottom in DRAM prices is a bold move, and Yeung concedes that not everyone is going to believe them. And he also notes that while he sees a bottom ahead, we’re not quite there.

“We note that DRAM prices are likely to face continued pressure in the coming weeks, with no anticipation of a price increase until the May-June period,” he writes. In fact, Citi today is lowering estimates on both Micron and Qimonda, and Yeung thinks there will be “downward estimate revisions” around the Street. “We also do not ignore the threat of rising industry capacity, including the transition of NAND flash capacity to DRAM capacity.”

On the other hand, he notes that in 2003, “buying ahead of a pricing bottom proved profitable.” Adds Yeung: “Our choice to be early reflects our presumption that much bad news is already factored into share prices.”

Micro today is up 11 cents at $11.37; Qimonda is down 3 cents at $14.71.