Elpida can charge as much as 30 percent more by selling chips directly to customers, said Chief Administrative Officer Takehiro Fukuda. A glut of memory chips caused a 77 percent drop in spot prices this year, according to Taiwan-based Dramexchange, Asia's biggest semiconductor market.

``Our business model allows us to report a profit even amid severe price declines for memory used in personal computers,'' Fukuda said in an interview in Tokyo on Oct. 2. He declined to say how much contract sales comprise of total revenue.

Tokyo-based Elpida and market leader Samsung Electronics Co. are focusing on dynamic random access memory chips used in mobile phones, cameras and game consoles to bolster earnings. Hynix stopped spot sales last month and Sony Corp. said it will form a venture with Infineon Technologies AG to cut costs.

``Elpida is performing relatively well in adverse market conditions,'' said Hideyuki Suzuki, an analyst at SBI E*Trade Securities Co. in Tokyo. ``Profitability of DRAM chips seems to be recovering and Elpida's situation is getting better.''

Shares of Elpida rose 6.6 percent, ending a three-day losing streak, to 4,180 yen on the Tokyo Stock Exchange today, compared with a 0.6 percent decline in the benchmark Nikkei 225 Stock Average. Elpida's gain was the biggest since June 16, 2006.

Profit Improving

``The spot market price is lower than contract prices because we're going into high season for the PC industry, and manufacturers have already secured their supplies,'' Roger Chu, an analyst at Dramexchange in Taipei, said by phone today.

Elpida's operating profit, or sales minus the cost of goods sold and administrative expenses, will be more than the 3.74 billion yen ($32 million) for the first quarter ended June 30, Fukuda said, without providing specific figures.

The company may report operating profit, or sales minus the cost of goods sold and administrative expenses, of 10.7 billion yen in the three months ended Sept. 30, according to the average estimate of five analysts compiled by Bloomberg. That's a 37 percent decline from a year earlier.

The company had an operating profit margin of 14 percent in the fiscal year ended March 31, 2007.

Global orders for DRAM may outstrip supply this month, helped by seasonal demand and increasing sales of Microsoft Corp.'s Vista operating system software, which requires more memory, Fukuda said.

Sony Chips

Sony, the world's second-largest consumer electronics maker, said yesterday it will design chips with Infineon to reduce development costs and make DRAM for faster data processing in cameras and mobile phones.

``Either Samsung or us will be affected, but not significantly,'' Elpida's Fukuda said.

Elpida supplies DRAM chips for Sony's PlayStation game consoles and Bravia televisions, according to Fukuda, who was formerly chief financial officer. He declined to say how much business Sony has with the company.

Consumer electronics accounted for 28 percent of global DRAM sales last year, according to Andrew Norwood, an analyst at Gartner Inc. in London. Sales of the chips will probably increase to $10.5 billion, or 35 percent of total DRAM revenue, by 2011, Norwood said.

Suwon, South Korea-based Samsung was the largest producer of non-computer DRAM chips last year, followed by Elpida, Qimonda AG, Micron Technology Inc. and Hynix Semiconductor Inc., according to Norwood.

In July, Elpida and Samsung separately said that increasing their reliance on high-end memory products allowed them to reduce the impact of falling DRAM prices.

By: DocMemory
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