March 26, 2009 / 3:24 AM / 10 years ago

UPDATE 2-Asian chip shares jump on recovery prospects

* Shares up on improving outlook, gains in chip prices

* Elpida up 18 pct on fund raising plan; Hynix rises 15 pct

* Taiwan chip shares hit daily limit, rise 7 pct

* Analysts still retain cautious view of struggling sector (Add comments, details, updates share prices)

By Rhee So-eui and Sachi Izumi

SEOUL/TOKYO, March 26 (Reuters) - Shares in Asian chip makers such as Hynix (000660.KS) and Powerchip rose on Thursday on an improving outlook for the battered sector as chip prices gained and leading players signalled a recovery for the industry.

Investors were also encouraged after Japan’s Elpida Memory 6665.T said it would raise $471 million, easing concerns of the firm breaching debt covenants and reducing the financial risk for the world’s No. 3 DRAM chip maker. The stock jumped 18 percent.

Hynix CEO Kim Jong-kap backed the sector optimism and reiterated his recent optimistic views for the DRAM sector.

Makers of dynamic random access memory (DRAM) chips, used mostly to power personal computers, have slid into massive losses in recent quarters as prices plunged and demand slumped in the sector’s worst-ever downturn.

“The impact of output cuts since the beginning of 2009 is materialising,” said James Song, an analyst at Daewoo Securities. “I think talk of a shortage is premature, but the market has stopped worsening.”

After a two-year decline in chip prices, the sector is flirting with hopes for a recovery as firms reduce supply and consolidation is underway. Germany’s Qimonda QMNDQ.PK filed for insolvency in January and the Taiwanese government is trying to restructure the island’s chip industry.

Economic data has also suggested some improvement.

New orders for long-lasting U.S.-made goods rose in February for the first time in seven months and new home sales rebounded, U.S. government data showed on Wednesday, suggesting the economic downturn might be easing a bit. [ID:nN25415362]

Taiwan’s top DRAM maker Powerchip 5346.TWO said late on Wednesday the firm’ output reduction would likely help deplete inventories by June and the market was likely to face a shortage in the third quarter. [ID:nTP333464]

Taiwan’s February export orders fell 22.3 percent in February from a year ago, down for a fifth straight month, but easing from a record fall in January as rush orders from China helped offset the decline. [ID:nTP173438]


“The fourth quarter was likely a bottom and it will get a bit better in the first quarter,” Kim from Hynix said at the company’s shareholder meeting, according to a spokesman.

Spot prices of key DRAM chips jumped more than 13 percent by mid-day on Thursday, adding to a 4 percent rise on Wednesday, according to research firm DRAMeXchange. However, prices are still down about 50 percent from a year ago.

Shares of most chip firms, which underperformed in the most part of 2008, jumped. Elpida’s shares rose 18 percent, or by the daily limit of 100 yen, while South Korea’s Hynix Semiconductor Inc (000660.KS), the world’s No. 2 DRAM maker, gained 15 percent, their daily limit.

Industry leader Samsung Electronics Co Ltd (005930.KS) added up 2.5 percent. Tokyo's Nikkei average .N225 was up 1.8 percent and Korea's KOSPI .KS11 rose 1.2 percent.

Taiwanes DRAM makers hit their highest daily limit, with Powerchip and Nanya Technology (2408.TW) up 6.9 percent. ProMOS 5387.TWO gained 6.4 percent in a broader market up 0.8 percent.

Still, despite the jump in share prices, analysts maintained a cautious outlook for the sector.

“This could be a short-term effect and we’re not sure about the recovery’s strength in the second half,” said Kenneth Lee, who heads research at Taiwan’s Fubon Securities Investment Services.

“Taiwanese companies won’t be profitable again until after 2010.”

The Taiwanese government has outlined the formation of a new company called Taiwan Memory, which will help the island’s DRAM industry compete with bigger rivals in South Korea. [ID:nSP474953] (Additional reporting by Baker Li in TAIWAN and Park Jungyoun in SEOUL; Editing by Anshuman Daga)

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