RealTime IT News

Samsung Predicts End of DRAM Oversupply

South Korea's Samsung Electronics said on Wednesday oversupply of memory chips used in personal computers was expected to ease in 2008 as growing demand for portable gadgets prompts a shift in production to Flash chips.

The world's biggest maker of memory chips, which trails Finland's Nokia in mobile phones and jumped ahead of U.S. rival Motorola this year, gave ambitious guidance on the business, forecasting it would sell 25 percent more phones next year compared with this year.

In October, Samsung posted a flat third-quarter net profit as sluggish computer memory chip prices offset strong flat screens, and had warned that the whole memory sector could see losses in this quarter.

Although the market for dynamic random access memory (DRAM) chips was still tough, rising demand for NAND-type Flash chips used in portable gadgets, such as Apple's iPhone, means manufacturers will switch more production from DRAM to NAND, easing DRAM supply, said Chu Woo-sik, executive vice president in charge of investor relations.

"The market is very difficult for DRAM," he said at a technology forum organized by Samsung.

Moreover, many memory chipmakers will have to stop some older production lines using 8-inch wafers because they are not cost effective. Converting to more profitable lines that produce more chips from bigger wafers takes time and money.

In the "next few months, they will have to make the critical decision to retire those facilities," Chu said.

The DRAM sector, which also includes smaller local rival Hynix Semiconductor and Germany's Qimonda, has been plagued with oversupply since the beginning of the year.

After a strong period of growth chip makers kept churning out DRAM chips despite lack of great demand, causing steep price drops over the course of the whole year.

Some DRAM chips are nursing price drops of more than 80 percent since the beginning of the year.

Samsung's forecast is more bullish than that of market research firm iSuppli, which two weeks ago cut its rating on suppliers of DRAM and Flash memory chips to "negative" from "neutral", citing a supply glut and a fall in prices.

iSuppli said market conditions should slowly improve during the next few quarters, with DRAM picking up more quickly than NAND. The researcher said earlier this month that the DRAM sector generated $7.96 billion in the third quarter, an 8 percent rise on the previous quarter.

Chu said the company did not intend to raise its capital expenditures in 2008, saying it was not intending to "flood" the market.

"Samsung not increasing capex is good news for the DRAM market," said Yoo Chang-eyun, an analyst at BNP Paribas, adding that the current oversupply had prompted many DRAM makers to accelerate the retirement of their 8-inch lines. "We don't need more capex right now" in DRAM, he said.