DRAM Market Recovery Extended

CNN Money has a great article on the prolonged recover of the DRAM market. According to CNN Money:

In the high-stakes global staring contest of the DRAM memory market, manufacturers are starting to blink. But for some particularly battered competitors, it might be too little, too late.

The market for dynamic random access memory, used mainly in computers, is in the midst of a prolonged period of oversupply that is cutting into cash reserves. As a result, some DRAM makers have begun to cut their capital expenditures, which will eventually lower supply. However, continued investments from larger market players as well as the weak economic environment could push a recovery well into 2009.

Prolonging the market's recovery enables the larger players - like industry leaders Samsung Electronics Co. (005930.SE) and Hynix Semiconductor Inc. ( 000660.SE) - to gain market share at the expense of troubled smaller companies, such as Qimonda AG (QI).

Samsung and Hynix are "certainly contributing to and prolonging the DRAM industry downturn. It was in a recovery mode, but it looks like its going to stall and we're going to go back into an oversupply situation," Caris & Co. analyst Betsy Van Hees said, adding that her most bearish outlook has the downturn lasting into the third quarter of next year.

Not everyone agrees that a recovery will take that long to occur.

"Other than Samsung, most suppliers cut their capital spend dramatically, so the industry supply growth will slow down for sure, triggering recovery next year," said iSuppli corp. analyst Nam Hyung Kim, who believes the DRAM market bottomed in the second-quarter and expects "a few top tier suppliers" to turn a profit this year.

Some prominent DRAM makers recently announced spending cutbacks. For example, last week Taiwan's largest DRAM maker by revenue, Powerchip Semiconductor Corp. (5346.OT), lowered its capital spending this year by 28%, while Nanya Technology Corp. (2408.TW), the second-largest, reduced its capital spending expectations by 33%. The two companies have posted five consecutive quarterly losses.

The article is a good read. According to CNN Money Infineon subsidiary Qimoda is the company in the most danger of exiting the market and their shares have lost 85% of their value over the last year. However, they are not the only ones to have been hammered. Nanya and Powerchip have also had some problems. If the recovery only does start to occur next year, some companies will no doubt exit the market.

CNN Money: Spending By Top DRAM Makers Delays Recovery