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July 28, 2017

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DRAM shares rise on higher product prices

TAIPEI -- Local dynamic random access memory (DRAM) stocks moved higher Tuesday morning, outperforming the broader market, on a significant increase in product prices over the past month and hopes the trend will continue in the third quarter, dealers said.

Shares of Inotera Memories Inc. (華亞科技), in particular, attracted strong buying as investors expected the DRAM supplier to report good second quarter results at an investor conference on July 29 because of the price hikes, they said.

As of 11:54 a.m., shares of Inotera Memories had added 5.86 percent to NT$59.60 (US$1.97), with 67.22 million shares changing hands, while shares of Nanya Technology Corp. had gained 3.36 percent to NT$8.30 on trading volume of 4.13 million shares.

Inotera and Nanya are the two DRAM manufacturing arms of the Formosa Plastics Group.

The current buying also spread to the DRAM module manufacturing segment with shares of ADATA Technology Co. up 1.77 percent at NT$80.30 on trading volume of 6.82 million shares.

The weighted index on the stock exchange was up 0.36 percent at 9,474.91.

Solid Demand for Mobile Devices

"The DRAM business has benefited from solid demand for mobile devices. And even better, the personal computer market has showed signs of recovery to further boost demand for memory chips," Asia Securities Investment Consultant analyst Chang Chih-cheng.

According to International Data Corp., global PC shipments fell only 1.7 percent in the second quarter from a year earlier, compared with the IDC's estimate of a 7.1 percent drop.

"The DRAM industry has been riding the wave of an uptrend in price hikes because of tight supply to further strengthen its bottom lines," Chang said.

The average price of 4Gb DDR3 DRAMs in the spot market hit US$4.5 on Monday, a record high resulting from rising demand. The average price of the benchmark DRAM has risen more than 10 percent in the spot market in the past month.

"The price hikes have been reflected in DRAM companies' sales data for the second quarter, which has prompted many investors to expect them to report higher net profits in the quarter," Chang said.

Inotera, which has been a closely followed DRAM stock on Taiwan's exchange due to its improving bottom line, saw sales rise 6.06 percent sequentially in the second quarter to NT$21.45 billion, the highest for any quarter in the company's history.

"Judging from Inotera's second quarter sales data, the company could report earnings per share of NT$2 for the quarter," compared with EPS of NT$1.85 in the first quarter, Chang said.

He also said Inotera's gross margin for the second quarter may have topped its 54 percent gross margin in the first quarter.

Peak season effects in the current quarter could continue to boost DRAM prices, said Chang, who suggested that major DRAM companies could see a 15-20 percent sequential increase in sales in the quarter.

"Many investors are looking for positive guidance from Inotera at the upcoming investor conference. In the run-up to the meeting, they are simply pushing up the stock today," the analyst said.

Chang cautioned, however, that because Inotera shares have gained significantly in recent sessions, investors should be aware of stiff technical resistance the stock will face as it moves closer to NT$62 in the near future.

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