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Powerchip plans capex slash, sees DRAM prices up

Reuters - Saturday, June 27

* To cut capex to below T$t bln, to dispose assets

* Expects DRAM chip prices to climb in Q3

* Says results to improve in July, August

By Roger Tung

TAIPEI, June 26 - Struggling Powerchip <5346.TWO>, Taiwan's top DRAM chip maker, said it planned to slash its capital expenditures this year and dispose of assets as the company tries to raise money during the sector's worst ever downturn.

The company also expected DRAM chip prices to climb in the third quarter due to short supplies as companies had cut production by too much, Powerchip spokesman Eric Tang said on the sidelines of the annual shareholders' meeting.

He said the company was beefing up its inventory to meet the expected increase in demand.

Tang told Reuters that Powerchip would cut its capital spending to less than T$5 billion this year, about half of its forecast made late last year.

"We should see utilisation rates improving a little then," Tang said.

He said the company would sell some of its assets, but declined to elaborate or to comment on media reports that the company could sell a 12-inch wafer factory.

He told reporters the company was still under continued financial pressure and that it was willing to consider all options that would help it through the current crisis.

"As long as it can help bring cash to the company and improve our finances, we're willing to consider most things," the spokesman said.

Last year Powerchip and other chipmakers, including ProMOS <5387.TWO> and Nanya Tech, <2408.TW> agreed to cut production to combat a supply glut, which Tang said had driven the spot price up to $1.50.

Research firm DrameXchange estimates has said that the current spot price of each DRAM chip is about $1.

ANALYSTS LEERY

Tang said the company expected its results to improve in July and August as a component shortage that has been affecting notebook PC production should be resolved by then.

Analysts were less optimistic about the company's prospects.

"For the company to turn a profit this year is going to be difficult," said Tiffany Chen, an analyst at KGI Securities. "That might be more possible next year, and even then, it's going to depend on DRAM prices."

Many DRAM chipmakers in Taiwan and elsewhere have been facing funding difficulties, with Powerchip having to reset the terms of its convertible bonds totalling $158 million because of repayment problems. [ID:nTP90348]

Tang said the company could resume margin trading from full-cash delivery stock trading when all its bondholders agreed.

The company, which along with other DRAM makers have had several quarters of losses, was barred from margin trading on the over-the-counter Gre Tai Securities Market on July 19 after it failed to pay out the bonds.

Powerchip shares closed Friday's session down 3.55 percent, underperforming a 0.99 advance on the benchmark TAIEX <.TWII> share index. (Writing by Kelvin Soh; editing by Lee Chyen Yee and Karen Foster)

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