Most memory makers to show red in Q2, recovery slow

SEOUL (Reuters) - The worst may be over for the long-suffering memory chip industry, ravaged by more than two years of low demand and anemic prices, but no swift return to profit is in sight.

The end of the downcycle is not expected to translate into any sudden earnings windfall for the industry, where only market leader Samsung Electronics is set to report a divisional profit for the April-June quarter.

A poll of 11 analysts shows that Samsung’s overall net profit is expected to dip to 1.68 trillion won ($1.35 billion) in the second quarter, down from 2.14 trillion in the year-ago period but a leap from 619 billion won net profit posted in the first quarter.

The company is also expected to show a single-digit operating profit margin in its semiconductor unit, which posted a 17 percent loss margin in the first quarter. Handsets and LCD screens are also expected to contribute strongly to Samsung’s profits for the quarter.

World No. 2 DRAM maker Hynix Semiconductor is expected to reduce its operating loss thanks to higher prices it can charge for its more advanced DRAM chips.

But Toshiba Corp and Elpida Memory, Japan’s two biggest memory chip makers, are expected to post second-quarter losses and stay mired in the red this year.

In Taiwan, where the government has formed a company to help bail out the industry, Powerchip is likely to post its ninth straight quarterly loss and will not even hold an investor conference to explain the results. The island’s DRAM makers are widely expected to post losses into the second half as they struggle with prices that are still too low for profits.

“The divergence between top players and second-tier companies will continue to grow through the year,” said Peter Yu, an analyst at BNP Paribas.

“DDR3 is going to be the game changer,” he added, referring to the most advanced memory chip available commercially today. DDR3 is currently a segment where Samsung and Hynix dominate thanks to their technological advances.

Investment cutbacks by cash-strapped memory makers have eased the supply glut, bringing more stability to the market for dynamic random access memory (DRAM) chips, widely used in personal computers.

Most analysts predict DRAM prices will continue to climb through the third quarter in the run-up to the holiday gift-giving season, then pause later in the year due to seasonally slow demand for electronics.

Prices of NAND flash chips, widely used in portable gadgets such as cameras and digital music players, are also expected to come down after steep rises since the beginning of the year.


With cash-deprived companies drastically cutting capital investments over the past quarters, the outlook for 2010 is brighter, analysts say.

“2010 is likely to start with tight supply in the DRAM market, and end with hints of oversupply in the best case scenario,” said Yoshihiro Shimada, chief analyst at SPI Analysis in Tokyo.

The biggest beneficiaries from the tighter market are likely to be Samsung and Hynix, as smaller makers will be busy scrounging for money to boost their capital investments.

“Even if they miraculously find the enormous amounts of money needed to keep up with the competition, those companies need lead time to purchase new equipment, to install it and then ramp it up,” BNP’s Yu explained. “Some latecomers simply won’t be able to make up for those delays.”

Samsung, which issued upbeat guidance on its second-quarter earnings earlier this month, was the only company to predict that its chip-related investment in the second half would rise “slightly” from the first half.

($1=1247.5 Won)

Additional reporting by Mayumi Negishi in TOKYO, Baker Li in TAIPEI and Rhee So-eui in SEOUL; Editing by Valerie Lee