Aug 18th - Elpida: DRAM price erosion exceeded expectations

"The spot price of 2Gbit DDR3 started dropping sharply in April and reached $1.09 today. And since the mega-quake, the DRAM price has halved. We didn't expect things to get this tough," said Yoshitaka Kinoshita, COO of Elpida Memory, Inc.

Elpida's downbeat business results for the first quarter of this fiscal year, which started in April, reflect the harsh environment. Sales almost halved to 95.7 billion yen (US$1,196million*), just 54% of the 176.3 billion yen reported for the same period of the previous fiscal year. The operating loss was 3.8 billion yen and the net loss 7.3 billion yen, the third straight quarter in the red for both operating and net income.

* Original figures are in Japanese yen. The exchange rate is roughly US$1=80 yen.

Mobile IT products, digital consumer electronics, servers and PCs are the major DRAM applications. Elpida estimates about 20% of DRAMs produced worldwide end up in mobile gear, 10% in digital consumer products, 10% in servers and 60% in PCs. If we think of the market in terms of a weather forecast, the server market will be fine, but the mobile IT market, supposedly the sweetest spot, is becoming cloudy, rain is already falling on digital consumer electronics and the PC market is almost in the midst of a typhoon, according to Yukio Sakamoto, president and CEO of Elpida.

In these circumstances, Elpida doesn't expect the DRAM market to recover until September in the best case or until November in the worst case. The projection is based on the timing of inventory adjustment of end products by vendors and of DRAM chips by chipmakers. New products to be introduced for the year-end holiday season should also help spur recovery.

Reflecting the severe environment, Elpida's quarter-to-quarter bit growth was 15% for the first quarter, though the company expected 20-30% growth in May. For this quarter, in light of the economic uncertainty triggered by the downgrading of the US bond rating, Elpida lowered its bit growth forecast to 10%. For this fiscal year, the company lowered the bit growth forecast to 40-50% from the figure of more than 50% it announced last May.