Monday, October 1, 2007

UBS Semiconductor Research: Early DRAM ASP peak raises concern for 2008 (downgrade SEC, Hynix, ProMOs, Powerchip, Inotera, and Nanya Tech)

* Tough DRAM market to continue: ASPs at cash cost; consensus EPS risk:


  * DRAM ASPs could be near bottoming (again), but we do not expect
  profitable ASPs for most DRAM makers until 2008. We think consensus
  EPS estimates are still too high. We now forecast 45%/32% 2007/08 YoY
  DRAM ASP declines. We expect strong Q4 NAND demand, but remain
  concerned over accelerating supply.

* NAND market strong but approaching seasonal demand peak:
  * Despite a slew of positive high-density, NAND-based product
  announcements from Apple, Sandisk, Nokia and others, we continue to
  expect NAND supply growth to overwhelm demand growth in late Q407,
  pushing ASPs down 25% in Q407 and a further 27% in Q108. NAND card
  makers have begun adjusting inventory.

* Proprietary supply demand models point to more near-term risk:
  * Using proprietary UBS models, we lower our 2008 DRAM/NAND ASP
  estimates 2.1%/15% and now expect 7%/2% 2008 DRAM/NAND YoY revenue
  growth. We forecast DRAM makers to expand capacity into H107, despite
  likely increasing losses due, in part, to several years of
  profitability and rising capex.

* NAND makers still likely to fare better than DRAM makers in H207:
  * NAND makers are enjoying improved profits on stable ASPs and
  declining costs, but DRAM makers’ profits could continue to suffer
  into H108. We downgrade our ratings for Hynix and Samsung Electronics
  from Buy to Neutral, and downgrade DRAM makers Powerchip and ProMOS
  Technologies from Buy to Sell, and Nanya Tech and Inotera Memories
  from Neutral to Sell.