Analysts: DRAM, NAND sectors still ailing

November 26, 2007 – Two Wall Street analysts are reissuing health warnings for both the DRAM and NAND memory sectors, diagnosed as suffering from acute inflammation of supplies, and the patients’ conditions are expected to get worse before getting better.

Barrons blogger Eric Savitz sums up the info from Pacific Crest analyst Kevin Vassily and Caris & Co.’s Daniel Berenbaum. In a research note, Vassily says that he left for a recent trip to Taiwan and Japan memory firms when DRAM spot prices were already down 20% M-M, and upon return they were down another 10%. “Producers seem shell-shocked, and for good reason,” he writes, and they expect the horrible pricing environment to get even worse due to widespread process migration and additional capacity coming online near-term, on top of entering a seasonally week first half of the year. NAND pricing is stable, he says, but his checks indicate “nearly unanimous” sentiments that DRAM prices are softening and price declines loom by December, also blamed on new supplies coming online.

Caris’ Berenbaum noted that DRAM spot prices are already well below cash costs but still show no signs of near-term rebound, and that he wouldn’t be surprised to see one or more players squeezed out of the market by pressures to keep costs down. At particular risk is Qimonda with its high cash burn rate, he notes, adding that the company should take a page from Elpida’s playbook for a sale/leaseback deal with GE Capital on 300mm fab equipment to reduce depreciation and free up cash, while also prolonging industry oversupplies. Even so, he expects Qimonda’s DRAM share to dip from 13% to below 10% by year’s end, as new capacity comes online in Taiwan and Korea.


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