DRAM Makers See Recovery in First Half of 2008

Players in the computer chip production industry are looking ahead to a recovery in the first half of next year and hope prices, some of which have been lower than production costs, are finally hitting a bottom. The year began with great anticipation for the new Windows Vista launch; computer chip makers enthusiastically doubled amount of chips produced in 2006. However, demand was heavily over estimated, with some chip prices dropping almost 80% this year. Of course, no one knows exactly when chip prices will scrape the bottom, but chip makers like Samsung and Elpida Memory are looking for a recovery of the dynamic random access memory (DRAM) chip in the first half of 2008. "DRAM prices will likely hit a bottom sometime during the first half, and are expected to rise very sharply in the second half," said Chu Woo-sik, Samsung's executive vice president in charge of investor relations.

For this to happen however, it looks like production must decrease and the excess inventory must also be sold. "We are all waiting for someone to cut production'" said Elpida spokeswoman Kumiko Higuchi. Prices for some DRAM chips have fallen below costs, prompting companies to decrease spending. "DRAM capex is expected to decline by at least 20 percent globally in 2008," said Nam Hyung Kim, chief analyst at market research firm iSuppli. Inventories must also be sold off to decrease supply: "Excess inventory has to disappear before a turnaround happens, and that could take a whole month," said Jae H. Lee, an analyst at Daiwa Securities. "I don't see it happening in the first quarter." No one expects a smooth recovery and nothing can be done until the companies address the supply and demand issues that have hampered them all year.

Sources: Reuters

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.