Asian Memory Chip Shares Jump on Qimonda Trouble

Shares in leading Asian memory chipmakers including Samsung Electronics rose sharply on Wednesday, boosted by hopes the sector's chronic supply glut would ease after German rival Qimonda filed for insolvency.

Qimonda, which controls about 10 percent of the global DRAM market, filed for insolvency on Friday, succumbing to massive oversupply and a deepening global downturn that has sapped demand for personal computers and other devices which use the chips.

Analysts expected a limited direct impact on chip supply but said Qimonda's troubles should give investors a reason to focus on leading players, including the world top three of Samsung Electronics and Hynix Semiconductor in South Korea and Japan's Elpida Memory.

"Even if Qimonda avoids bankruptcy and gets bailouts, it will cease to be a mass-scale DRAM manufacturer," said James Song, an analyst at Daewoo Securities, pointing out it would have to sell off equipment and face problems with future investment.

"Plus expectations are growing that more companies will exit the market. The consensus expectation is that more restructuring will follow in the Taiwanese DRAM industry," Song said.

Talks to consolidate Taiwan's DRAM industry are gaining pace with the island's top three DRAM makers, Powerchip, Nanya Technology and ProMOS discussing possible mergers or other options with the local government.

Samsung shares closed 10.5 percent higher, its biggest gain since October 2008. Hynix soared by its 15 percent daily limit as the Seoul stock market reopened after the Lunar New Year holidays.

In Japan, Elpida shares climbed 9.1 percent, taking gains to as much as 21 percent since Monday.

Taiwan's stock markets will resume trading next Monday after a week of Lunar New Year holiday celebrations.
     
Fighting Costs

Makers of dynamic random access memory, used mainly in personal computers and increasingly in mobile devices and game consoles, have been teaming up to cut costs and output to fight falling prices.

Japan's Asahi daily reported Toshiba, the world's second-biggest maker of NAND flash memory, planned to shut some local assembly plants to slash costs.

Although any Qimonda failure would be positive for investor sentiment, it would not produce fundamental changes in the still-dismal memory chip outlook, analysts said.

Oversupply and rapidly declining electronics demand have pushed chip prices lower than production costs. Sector leader Samsung reported on Friday its first-ever quarterly loss while No. 2 DRAM maker Hynix was forced to seek emergency funding from its shareholders.

Global DRAM sales are expected to fall 4 percent in 2009 for third year in a row, according to research firm iSuppli.

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"On balance we retain a cautious view on DRAM, in light of the worsening demand outlook," Robert Lea, an analyst at UBS, said in a research note. "We believe stability in demand is a prerequisite to an industry recovery."

Production at Qimonda's plants will continue for the time being. Its insolvency administrator said it was examining ways to continue business, possibly including finding a buyer.

While the German firm held 9.7 percent of global DRAM shipments in the third quarter of 2008, the impact from Qimonda's insolvency will be limited to only around 4 percent of global supply as the firm relies on outsourcing partners and has cut output recently, analysts said.

In the short term, DRAM prices could fall in the spot market as Taiwanese suppliers to Qimonda, Inotera Memories and Winbond Electronics, are expected to turn their shipments into the market, they said.

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