DRAM Industry Faces Further Shake Outs

After the recent bankruptcy filing by German chip maker Qimonda as well as huge losses posted by several DRAM makers in the final three months of last year, it appeared the worst might be over for the industry.

But this week, more DRAM makers face loan repayments that could send them into a bankruptcy filing, or some other form of restructuring.

The impact for users is clear. The fallout is higher prices for DRAM, the most common memory chip in computers.

Spot market prices of all DRAM chips were up 25.7 percent week on week as of last Friday due to Qimonda's bankruptcy filing, according to market researcher Gartner.

Qimonda further worried DRAM traders last week by announcing the closure of an advanced factory in Richmond, Virginia, that Gartner estimates accounted for 3 percent of global capacity. With the amount of production lines in use dropping, many traders felt it was time to restock last week.

More shocks could soon hit the DRAM market and further raise prices.

Taiwanese DRAM maker ProMOS Technologies faces payments of around US$330 million on a bond by the end of this week. The company has applied for an NT$6 billion (US$178 million) loan from banks, as well as asked the Taiwan government for funds to help pay the debt, but so far has not received the needed assistance.

The company's production is more than twice that of the Virginia plant Qimonda closed last week, so a failure to repay its debt could have a profound impact on the DRAM market in the near term.

ProMOS has been the focus of many rumors over its potential to meet the payment.

On Monday, the Chinese-language Economic Daily News paper reported that ProMOS had already applied for restructuring protection in Taiwan, a situation similar to bankruptcy protection.

In a statement to the Taiwan Stock Exchange, ProMOS said it had done no such thing.

Qimonda's ongoing saga could also hit the DRAM market. The company continues to revamp its operations, including the Virginia decision last week.

Qimonda's partners in Taiwan are also scrambling to find new ways to move forward without the German company. Winbond Electronics, for example, has reportedly been in talks with Micron Technology of the U.S. and Elpida Memory of Japan as potential new technology partners.

Gartner and other industry researchers say the shocks to the DRAM market will likely cause short term price spikes only. Over the longer term, the oversupply in the market could send prices down again.

DRAM chips are produced in such heavy volume that a spot market exists, where traders buy and sell the chips like commodities such as oil. DRAM prices tend to spike and drop in a manner similar to the way a disrupted pipeline or fighting in a sensitive nation or area may cause oil prices to move.

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