Signs of chip recovery, DRAM still in trouble

Texas Instruments is one of the chip companies that is poised for recovery.

The company rode the tidal wave of wireless communications demand in the late

1990s on the strength of its digital signal processor ICs. It subsequently

suffered when the telecommunications market collapsed in 2001.

TI said this week it expects sales and earnings in the second quarter to come

in on target, driven mainly by improving demand for consumer electronics. ''The

second quarter is progressing consistent with the outlook and expectations we

have previously expressed,'' said TI chief financial officer Bill Aylesworth.

Aylesworth expects revenues to rise by 10 per cent to around $2.0 billion.

The company will be profitable in the quarter he said. Aylesworth said many key

customers were now buying to meet end-demand and are no longer building or

depleting inventories. "In most market spaces our customers have reached their

target inventory levels and are buying consistent with consumption. Notebook

computers and various digital consumer electronics such as DVD players continue

to be strong, based on true end-demand."

Even makers of wireless communications devices are returning with purchase

orders. Nokia, for example has started to build up new inventories to meet

anticipated demand in the Christmas quarter. "With our wireless customers

having reached their target inventory levels, our shipments have been

accelerating in line with the typical seasonal demand pattern," Aylesworth

said.

The weakest sectors at Texas Instruments were for components supplied to

fixed telecoms and Internet infrastructure equipment vendors, which are still in

the process of depleting old inventories, Aylesworth said. In Japan, Hitachi,

Japan's biggest electronics maker, said it turning the power back on at a chip

fab in Yamanashi near Tokyo that produces ICs for use in liquid crystal displays

(LCDs). The plant had been sitting idle since last July for lack of demand for

such chips.

The facility can produce 3,000 200mm wafers a month. "We are starting to

see a strong recovery in demand for LCD drivers for cellular phones and personal

computers," a Hitachi spokesman said. The Hitachi move is but the latest

sign that conditions are improving in the semiconductor industry. Sharp said

earlier this month it has increased production of chips for cellular phones and

digital cameras at one of its domestic plants, and Toshiba said this week it has

decided to resume production at one of its IC factories in Japan.

Still, the DRAM memory market remains problematic. Prices for DRAM contracts

are falling once again, in large part due to excess production generated by

Korea's Hynix which failed to complete the merger with Micron which was expected

to have had a stabilizing effect in DRAM output.

Infineon Technologies CEO Ulrich Schumacher said contract prices could fall

in the next two or three months. "Contract prices at the moment are still

over $4. Everywhere where Hynix is, prices are under pressure -- it is only

short-term, I don't think it will last forever."