Citi's analysis suggests that DRAM sector cash-on-hand (ex. Samsung) is only enough for 2.56 quarters or less of operation and original capex. That said, to preserve cash for further capex and avoid any financial crunch risk, they believe DRAM makers will soon be forced to halt their original expansion programs despite anticipated debt fundraising.
Samsung is the safest DRAM maker, able to survive 12 quarters of cash burn, followed by Micron (MU) at 3.6 quarters. Meanwhile, Promos can only endure cash burn for 1.3 quarters.
Contrary to the Street's belief, Hynix is less able to sustain this cash burn than Powerchip (2.3 quarters) and Nanya (2.1 quarters). This shows that even Hynix will probably be forced to trim its wafer-in capacity capex and to halt 200mm production.
Firm notes that in 2001, tier-1 players could support four months of cash burn and capex fell 27.3% YoY in 2001 and 37.3% YoY in 2002.
Notablecalls: It's sure starting to look like the SMH is running on fumes.