Good News for DRAM Market

ASE and Powerchip Semiconductor teaming up to form new DRAM company.

Dan Nystedt, IDG News Service

The world's largest chip packaging and testing company has tied up with Taiwan's biggest DRAM (dynamic RAM) maker to invest $50 million in a new company, saying the DRAM market has improved after years of oversupply and consolidation.

Chip packager Advanced Semiconductor Engineering will invest $30 million in the joint venture, while Powerchip Semiconductor will contribute $20 million to form Power ASE Technology in Taiwan.

Power ASE will focus on testing and packaging DRAM chips, a business ASE shunned for years because of the boom and bust nature of the market.

"We believe the DRAM industry has become more consolidated than it was in previous cycles, with solid fundamentals, decreasing imbalance between supply and demand, and lower cyclicality risk," ASE said in a statement, adding it expects demand for DRAM to grow in the future.

Investors Regaining Faith

Since the turn of the century, many companies have avoided the DRAM industry. The bursting of the dot-com bubble caused DRAM sales to fall by a staggering two-thirds in 2001 to $11.9 billion, according to Gartner Dataquest, a far cry from its glory days in earlier years. The industry peaked at $41.8 billion in 1995.

Over the next few years, the market slowly recovered. But many DRAM makers continued to post losses, and the sting of the sharp 2001 downturn caused companies to seek new products such as NOR and NAND flash memory chips, pseudo SRAM (static RAM), image sensors, for profits.

Fortunes have improved dramatically for DRAM makers. Worldwide DRAM revenue is expected to rise to $26.4 billion this year, up 6.2 percent over $24.8 billion last year, according to market researcher iSuppli.

The new investment in DRAM testing and assembly shows companies chip makers outside the memory segment of the industry have regained faith in the industry. ASE used to focus almost exclusively on logic chips, which have garnered a far higher profit margin than memory chips over the past few years. The new joint venture with Powerchip shows the company believes the industry has turned a corner for the better.

"They are saying that the DRAM industry is improving and the risk of investing in new factories is lower," said James Huang, chip industry analyst at SinoPac Securities in Taipei.