Driven by strong global demand, Taiwanese DRAM (dynamic random access memory) manufacturers are now enjoying a vigorous business upturn. Their long-term business prospects remain cloudy, however, due to the formidable challenge of technological upgrading that lies ahead.

Most of the DRAM makers have done extraordinarily well so far this year. Powerchip Semiconductor, the local industry leader, for instance, saw its revenue skyrocket 423% year-on-year to NT$33.9 billion (US$1.1 billion at NT$32:US$1) in the first five months. The company has pulled itself out of a quagmire of red ink, with earnings per share reaching NT$0.4 in the first quarter.

Industry insiders believe that despite a recent slight decline in DRAM prices, the market boom will continue well into the second half of the year. Capacity growth will be limited and demand will expand further in response to the emergence of new products along with the trend toward digital convergence, such as iPads, tablet PCs, LED (light-emitting diode) TVs, and 3D TVs, along with the appearance of the cloud computing market and the growing popularity of smart phones. Moreover, the second half of the year is the traditional peak market season, and corporate replacement demand has started to emerge as well.

Hamstrung by mounting debts, however, many Taiwanese DRAM makers will be unable to enter the race for next-generation manufacturing processes that was triggered by the announcement by Samsung, the global industry leader, that it would invest US$16.5 billion to upgrade its technology and expand its capacity in the next several years.

Samsung plans to use some of that investment to upgrade its manufacturing processes to 30 nanometer technology in 2011, boosting its output 2.74-fold and cutting production costs in half compared with the 65-nanometer technology which is now the mainstream technology of Taiwanese makers.

Nan Ya and Inotera appear to be better positioned than some of their domestic peers, thanks to the deep pockets of their parent Formosa Plastics Group, as evidenced by their successful deployment (ahead of their local rivals) of 50-nanometer technology in late 2009.
Backed by the technological support of Micron, their strategic partner, the two companies are scheduled to move up to 40-nanometer technology in the third quarter of this year, although 60- and 50-nanometer processes will continue to be their mainstream for the time. Wang Wen-yuan, chief executive officer of the Formosa Plastics Group, says that the two companies will step up their pace of R&D so as to narrow their technological gap with Samsung.
To fund the massive investment it needs to upgrade, Inotera has raised NT$60 billion (US$1.9 billion) since last year by issuing global depository receipts, carrying out a cash capital increase, and taking out syndicated loans.
(by )