Tuesday, May 22, 2007

DRAM sector bleeding to death

- Citigroup is out with some pretty alarming comments on the DRAM space noting that even Samsung and Powerchip have started to burn cash with negative EBITDA generation, given that PC DRAM prices have nosedived to below US$1.7 for DDR2 512Mb 533MHz and US$1.3 for eTT products.

Citi's analysis suggests that DRAM sector cash-on-hand (ex. Samsung) is only enough for 2.56 quarters or less of operation and original capex. That said, to preserve cash for further capex and avoid any financial crunch risk, they believe DRAM makers will soon be forced to halt their original expansion programs despite anticipated debt fundraising.

Samsung is the safest DRAM maker, able to survive 12 quarters of cash burn, followed by Micron at 3.6 quarters. Meanwhile, Promos can only endure cash burn for 1.3 quarters.

Contrary to the Street's belief, Hynix is less able to sustain this cash burn than Powerchip (2.3 quarters) and Nanya (2.1 quarters). This shows that even Hynix will probably be forced to trim its wafer-in capacity capex and to halt 200mm production.

Firm notes that in 2001, tier-1 players could support four months of cash burn and capex fell 27.3% YoY in 2001 and 37.3% YoY in 2002.

Notablecalls: It's sure starting to look like the SMH is running on fumes.

1 comment:

dcxavier said...

These things run in cycles. AMAT recently stated that they expect bookings to be down over 10% next quarter, primarily due to reduced investment in DRAM. MU is raising cash with a convertible offering. All the same, I'm a buyer soon, expecially if there is a shake-out in the market. Gluts can and do turn into shortages quite quickly.