Prices of NAND flash memory chips are set to fall further amid rising output, but Micron Technology Inc. (MU) executives said the memory-chip maker has no near-term plans to shift its flash memory capacity back to DRAM chips.

"We would never think of making a dramatic shift like that based on very short term pricing dynamics," Micron Vice President of Worldwide Sales Mike Sadler said at an analyst conference in Hong Kong Thursday. "We're expecting a very strong bounce back of NAND flash demand in the second half of this year."

That should be good news for Infineon Technologies AG (IFX), which has capitalized on the weak performance of its rivals to take the number-two position in global DRAM sales for the first time with sales of $1.16 billion in the first three months of this year, up 49% from $778 million in the previous quarter.

DRAM, or dynamic random access memory, chips are widely used in personal computers, while NAND flash memory chips are used to store data in consumer electronics such as MP3 players and digital cameras.

Micron Chairman and Chief Executive Steven Appleton conceded that the company's push into the NAND flash market and other semiconductors, will lead to some market share losses in the DRAM sector. "We are not interested in exiting the DRAM business," Appleton said in an interview. However, he added, "DRAM will take up less and less of the company. NAND will ramp quite heavily and the imaging (business) is outgrowing DRAM."

Micron's share of the DRAM business has been steadily shrinking in the past few years. According to market research firm iSuppli Corp., the U.S. chip maker's share of the DRAM market stood at 19%. In 2004, it fell to 15.9% and in 2005 dropped to 15.5%. In the first three months of 2006, its DRAM market share fell further to 13.4%.

"If Micron isn't boosting DRAM output significantly that is positive for the DRAM industry," said Min Seong Hwang, an analyst at Credit Suisse.

Infineon, which ranked as the fourth-largest DRAM maker in 2005, behind Samsung Electronics Co. (005930.SE), Hynix Semiconductor Inc. (000660.SE) and Micron, saw its DRAM market share jump to 17.5% from 12.6% in the first three months of 2006, according to market research firm iSuppli Corp. It's now second only to Samsung.

"Infineon's surge in the rankings was partly due to disappointing results at Hynix and Samsung whose DRAM sales declined by 7% and 3% respectively during the first quarter," said Nam Hyung Kim, director and principal analyst at iSuppli. "These companies have been engaging in diversification efforts, shifting production from DRAM to more lucrative NAND flash parts."

According to iSuppli, Taiwan's Nanya Technology Corp. (2408.TW), Powerchip Semiconductor Corp. (5346.OT) and ProMos Technologies Inc. (5387.OT) also benefitted because they increased their DRAM sales in the first quarter by 7%, 9% and 5% respectively.

"Due to the strong sales of commodity DRAM to the PC market, global DRAM sales in the first quarter increased by 7%, which is higher than iSuppli's original estimate," said Kim.

    DRAM Market Turning Out Better Than Expected

As Samsung, Hynix, and Micron continue to focus on the NAND flash market and other semiconductors, analysts said the shift should help lead to a much better-than-expected market environment for the DRAM industry this year.

In a report Tuesday, Citigroup revised up its DRAM sales forecast by 7.3% to US$29.1 billion, citing "limited" supply growth in the DRAM market.

"All in all, a tight demand-supply situation should lead to better pricing," it said.

Citigroup said that the average selling prices of DRAM chips this year are forecast to decline at a more moderate pace of 25% from an earlier projection of 29%.

Merrill Lynch analyst Simon Woo said he is "very positive" on the outlook for the DRAM market this year.

"Most of the DRAM makers have lowered their bit growth targets because of tight capacity. That's why the DRAM market is stable," said Woo.

Early Friday, the average spot price of the mainstream chip, a 512-megabit double data rate two chip that runs at 533 megahertz, was stable at $5.04 each. The average spot price of the mainstream 2-gigabit NAND chip fetched US$5.10, up 0.4% from Thursday, according to online chip clearinghouse DRAMeXchange.

Prices of NAND flash memory chips widely used in MP3 players and digital cameras fell steeply in the first quarter and Samsung, Hynix and Micron executives, have all forecast more prices declines in the current quarter.

Last week, Samsung and Hynix executives both said they expect NAND flash prices to fall around 20% in the second quarter from the first quarter.

Sadler said Thursday he forecasts the average selling prices of Micron's NAND flash memory chips to decline about 35% to 40% in its fiscal third quarter ending in May, compared with the fiscal second quarter which ended March 3.

"Demand is going to be a lot stronger in the third quarter and even better in the fourth quarter. Prices for NAND will be quite more stable than the first half of this year," said Sadler.

By: DocMemory
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