Falling DRAM prices dent Winbond

More fabs needed for growth

The August revenue figures announced by Winbond Electronics on Saturday broke its all-time record, set one month previously, writes Iain Pocock in Taipei.

Revenue growth in August was also impressive when compared with last year's figures for the same month, but compared with July this year, it marked a rise of less than seven per cent, analysts noted.

That's because Winbond's 8in wafer production output is almost up to full capacity. The company has a production target of 33,000 8in wafers per month by the end of the year, analysts said. It's now already producing over 30,000 wafers per month.

Winbond is Taiwan's largest manufacturer of integrated devices, which includes dynamic random access memory and flash memory ICs. On Saturday, the company reported August revenue of NT$5.58 billion, nearly triple the corresponding figure a year ago. Total revenue for the January to August period came to NT$32.07 billion, up 90 per cent over the same period last year.

"Overall, August sales revenue for the DRAM Business Group increased, with current production capacity exceeding 30,000 wafers per month," Winbond said in a statement. Production technology is expected to continue to improve as the company migrates to the 0.175 micron technology manufacturing process in the fourth quarter, it said.

And if it wants to continue to increase output without building any more factories, such technology upgrades will be essential, analysts said. The company is mulling whether to construct a 12in wafer fabrication plant, but that wouldn't come on line until 2003.

Winbond's August revenue was all right, said Connor Liu, an analyst at SG Securities, but the revenue growth didn't come from any significant increase in capacity. July's revenue figures showed a nearly 24 per cent gain on the corresponding June figures.
Instead, the gains in revenue in August came from elsewhere. "The average selling price of 64Mb DRAM in August was about $8.3," said Liu. "In July, it was about $7.75; it rose by about six per cent."

That was when DRAM spot prices were high and expected to break $9 or even $10 in the third quarter. It was also before securities analysts started pointing out that the long-expected third quarter boom in PC sales just wasn't happening. Last week, Boris Petersik, an analyst at Donald, Lufkin & Jenrette said fears of a memory chip shortage had diminished due to the lower than expected PC demand.

Having stocked up on memory chips earlier in the year in anticipation of a shortage and an increase in third quarter demand, the PC makers now have an oversupply of the chips, analysts said.

And an oversupply of memory chips is one reason the DRAM spot price has been falling. On Friday, the American IC Exchange quoted the spot market price for benchmark 64Mb DRAM chips at a low of $8.01 and a high of $8.49. At the end of June, the price was quoted at $8.96.

"These days, investors are very nervous about the DRAM spot price," said Chris Hsieh, semiconductor analyst at Nomura International in Taipei. "What investors want is the average selling price of DRAM to increase," he said. Instead, it's down about 1.3 per cent in the last week, he said.

So even if the demand for DRAM has remained strong, which it has, investors are not buying a stock like Winbond because of its present fundamentals. "Normally, the share price reflects future earnings," said Hsieh. "It's a reflection of future average selling price; that's what's worrying investors."

A falling average selling price for DRAM chips and almost maximum capacity has rubbed off on Winbond's share price. Today, despite the record revenue figures, the stock fell NT$2 to NT$63, on turnover of 30.8 million shares. ®