Chip makers’ memory glut woes worse than expected

A memory chip glut this year has already caused companies to curtail orders of new production line machinery, but the lack of any sign of a rebound has caused at least one industry watcher to rethink its chip equipment forecast.

Semiconductor Equipment and Materials International (SEMI) in July forecast global chip equipment revenue will drop to US$34.12 billion this year, down 20 percent from US$42.77 billion last year.

But, the decline could be a steeper 25 percent drop, warned Dan Tracy, senior director of research at SEMI, speaking at Semicon Taiwan 2008 in Taipei on Tuesday. However, he cautioned that SEMI has not formally reassessed its forecast and won’t until later this year.

The problem appears to be mainly among memory chip makers, but companies in other segments of the chip industry are also reducing orders for equipment, said Clark Tseng, a senior manager at SEMI in Taipei.

Memory chip makers were cutting back on new factory projects in the second half of last year amid a glut that had caused chip prices to fall and remain at lows not seen in years.

The trouble is the memory chip industry continues to suffer and an expected third-quarter rebound in DRAM and flash memory chip prices has not yet materialized.

In fact, prices of mainstream DRAM chips have recently slid to all-time lows, according to DRAMeXchange Technology, which operates an online clearinghouse for the chips.

The lack of a rebound has caused memory chip makers to further curtail spending on new production line machinery.

Most of Taiwan’s memory chip makers have reduced their 2008 capital spending forecasts. The island’s largest maker, Powerchip Semiconductor, recently slashed its projected 2008 capital spending budget to NT$24.7 billion (US$775.3 million) from an earlier estimate of NT$34.5 billion.

German memory chip maker Qimonda cut its 2008 capital spending estimate to a range of US$528.2 million to $592.47 million, down from an original forecast for $916.91 million to $1.58 billion.

That means problems for chip equipment makers such as Applied Materials, of Santa Clara, California, and ASML Holdings of Veldhoven, the Netherlands. The companies could see orders further reduced by the cutbacks.

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