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SMIC Quits DRAM Manufacturing In Bearish Market

2008/04/25 | By Ken Liu

Taipei, April 25, 2008 (CENS)-Semiconductor Manufacturing International Corp. (SMIC) has stopped manufacturing dynamic random access memory (DRAM) chips this month due to market bearishness.

The mainland China's No.1 chipmaker is another heavyweight to phase out memory chip making after Elpida Memory and Qimonda. SMIC accounts for only around 1.5-2% of global output of such chips, with monthly output of 30,000-40,000 300mm equivalent of wafers.

Continually falling DRAM prices have caused huge loss for big players last quarter, with such loss, according to industry watchers, mainly caused by oversupply mostly triggered by slower-than-expected demand for Vista SP1, the upgraded version of the latest Microsoft OS for PCs, and competing bit growth of the memory chips.

SMIC has been contracted to make standard DRAM chips for Elpida and Qimonda. In fourth quarter last year alone, DRAM business accounted for 23.6% of its revenue, while its chip sales totaled US$93 million.

Industry watchers estimate that SMIC's exit to help bolster DRAM prices from further slumping without likely causing a market rally immediately; because its dropout only reduces a supply of 70 million 512Mb equivalent of chips in the market.

Industry watchers say that the mainland Chinese chipmaker will likely turn a profit in the second half this year by scrapping the money-losing business.

SMIC is reportedly switching to NAND flash memory production from DRAM and has informed chip-making equipment suppliers and customers of its new direction.

Taiwanese DRAM chipmakers see SMIC's exit as indicative of the bottoming out of the market and will begin to rebound when inventory backlogs drop to barely four weeks from six weeks.

Taiwanese DRAM chipmakers PowerChip Semiconductor Corp. (PSC) and Nanya Technology Corp. have announced their decisions to hike contract price of their chips for delivery next month by 10-20% as SMIC departs.

Industry watchers believes that the timing of SMIC's exit is good due to its production of logic chips has reached economies of scale, as have other fabless houses in China who have ramped up operation to considerable size; while SMIC will become the primary beneficiary of China's new regulations to boost its chip-making industry.