DRAM Stocks: What Am I Missing?
I received a note from Lehman about DRAM-related stocks.:
Â
“Our Naiwen Kerr
lifts the rating on Asian DRAM players Powerchip and Nanya to Buy from Sell and
sees limited downside risk in DRAM pricing, an expected inflect tion of DRAM rev
in June/July timeframe, ongoing excess inventory depletion and a likely end to
supplier consolidation. Also, both companies are also benefitting from the
transition to 12-inch operations and both have been successful in taking
operating cost out of their business. For Powerchip, Naiwen sees 57% upsideto
his NT$35.40 target and 55% upside for Nanya. For both companies his target
prices imply a P/B multiple of just under 2x, in-line with an average cycle mult
iple. ***Also note that Naiwen raises his rating on Winbond to Hold from Sell
and revises his target to NT$9.70 slightly above current levels.â€
Â
No question, a lot
of people are betting on a pop in semis. I talked with a company last week which
said it had to place fab orders now, just in case there really was a pick-up for
Christmas this year (wafer-in April, wafer-out June / July, package / assembly /
test/ship by July / August in time to be assembled into Christmas gifts in
August / September.)
They don’t actually see the demand but they can’t afford not to have parts ready
if one does materialize. They don’t get fired, or anger their investors, if they
only make the same mistake as everyone else. It’s being the only one who
couldn’t support the demand when it miraculously appears that gets you
fired. (Does this sound familiar?)
A small herd of these kinds of decisions and the fabs get a pop and word gets
out there is a recovery.
The missing component remains the actual demand spike needed to make all these
defensive decisions pay off. Let me know if you see actual evidence.
Of course, the other point I’ve been trying to make is capacity. As mentioned in
this Lehman brief, “12-inch” (aka 300mm) capacity is coming on-stream. It seems
to me, even if the demand miracle occurs, ASPs are liable to stay down, or even
decline. DRAM exchange today shows average
for 32Mx8 DDR400 down to $2.35. Wasn’t it a big deal two months ago when it fell
from around $4.00 to $2.75? Why isn’t anybody talking about $2.35 as a problem?
Â
Am I missing
something?
Â
I’ve written about
these things before in this column….Most
recently on
March 21 and
February 11 and my opinions (about the channel and capacity) remain
largely unchanged.
Â
Melanie
Hollands
melaniehollands@yahoo.com