Memory chip prices are expected to slide 30 percent or more by mid-year to below the manufacturing cost as chip makers plough generous 2004 profits into new production lines, exacerbating a surplus of supplies.
But analysts expect prices to stabilize in the second half as production switches over to the next generation of dynamic random access memory (DRAM).
DRAM supply will outpace demand by 2 percent to 3 percent in 2005, said Jae H. Lee, analyst at Daiwa Institute of Research in Seoul.
“We project DRAM prices to weaken further and possibly hit bottom in the second quarter, before experiencing a short price rally in the third quarter,” he said.
Lee forecast benchmark prices would hit $2.60 in the second quarter, below the $3 price that typically marks break-even for chip makers.
That would leave chip makers such as Samsung Electronics Co. Ltd., Micron Technology Inc., Infineon Technologies AG and Hynix Semiconductor Inc. facing losses, though bigger, more efficient companies will suffer less.
The boom-and-bust DRAM business enjoyed a strong 2004, with the price of benchmark 256 megabit DDR (double data rate) DRAM hitting highs above $6 per unit in April before easing to an average of $4.52 in the fourth quarter and around $3.70 in recent days.
Lee said the industry was funelling remarkably strong cashflow generated in 2004 into new capacity