By Marie-France Han and Mayumi Negishi - Analysis
SEOUL/TOKYO (Reuters) - After betting on a strong 2007 spurred by sales of new PCs, computer memory chip makers are now locked in a supply war that could aggravate an already heavy glut and threatens to destroy their margins.
Prices of dynamic random access memory (DRAM) chips have tumbled since January, after the chip makers made the mistake of overcompensating for a chip shortage last year, and manufacturers have yet to reduce their output, analysts say.
"There has been a 70 percent drop this year to date," said Simon Woo, an analyst at Merrill Lynch, adding that chips that were selling at $6 early this year were now below $2.
The world's top two makers, Samsung Electronics (005930.KS: Quote, Profile, Research, Stock Buzz) and Hynix Semiconductor Inc. (000660.KS: Quote, Profile, Research, Stock Buzz), are facing an ugly set of second-quarter quarter earnings.
"We expect Samsung's DRAM profit margin in the second quarter to be at breakeven, with overall semiconductor margin dropping to 6 percent from 12 percent in the first quarter," said Song Myung-sup, an analyst at CJ Investment & Securities.
"As to Hynix, it could very well post a 7 percent operating loss in the second quarter," Song said.
Many analysts say DRAM makers have only themselves to blame for the dismal price situation.
"The DRAM industry is returning to a classic market share battle with little regard for profitability, and all vendors are going to suffer," said Andrew Norwood, research vice president at Gartner Dataquest. Continued...
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