Module makers cut purchases after being caught out by slack demand

DRam memory chips makers are facing growing losses as prices fall, analysts in Asia have warned.

Cut-throat competition has made it increasingly difficult for the manufacturers to turn a profit this year, and the situation is worsening.

Prices of 512Mb DDR2 memory chips slumped to a new low of $1.02 this week, according to memory market research firm DRam Exchange.

"The DRam spot price has fallen to $1, and makers such as Powerchip, ProMos and Nanya Technology are facing losses of $100m monthly," said analysts from Taiwan's MasterLink Securities in a briefing for investors in Taiwan's stock market today.

The manufacturers are all medium-sized Taiwan-based chip makers, but companies elsewhere in the world are also expected to suffer serious losses.

MasterLink's analysts predict that the monthly losses could worsen if DRam spot prices do not rebound by the end of year.

Memory demand is relatively weak, meaning that some memory module makers, among the key buyers of DRam memory chips, have effectively overbought chips in anticipation that the price would hold steady or climb.

This slight oversupply, combined with the habitually cautious purchasing of the volatile commodities by smaller module makers, has exacerbated an unanticipated slowdown in the market.

"In general, the demand in October, which is typically stronger, has not been evident," said DRam Exchange researchers in a press briefing yesterday.

"Coupled with the sufficient inventory levels of major module houses, second-tier module houses tend not to buy DRam unless the items can be sold quickly and easily.

"Thus, with [little] 'buffer zone' in the spot market, prices have become more sensitive."