Signs of chip recovery, DRAM still in trouble

By : |May 30, 2002 0



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.”

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