Powerchip breaks ground on US$8.23 billion chip plants

Despite a deepening chip glut, Powerchip broke ground on two new US$8.23 billion chip factories

Powerchip Semiconductor broke ground on two new advanced factories for DRAM (dynamic RAM) and flash memory chip production on Tuesday, despite an ongoing memory chip glut.

Investment in the two factories will total an estimated US$8.23 billion once production line equipment is installed and the factories are in full production, the company said.

Market prices for the DRAM and flash memory chips that must eventually pay for those investments, though, remain in the doldrums after months of decline. Their prices are below the cost of production for most companies.

Powerchip plans to keep an eye on market demand as it builds the factories and could delay installation of production lines if chip prices remain down, said Eric Tang, a vice president at the company.

"This kind of business is cyclical so our plan is to continuously invest. You never know when there will be a down or up cycle," he said.

Powerchip believes chip prices are near the bottom now and could rebound in the third quarter, he added.

The price of the most widely used type of DRAM, 1G-bit DDR2 (double data rate, second generation) chips that run at 667MHz, has fallen by over half since the last market uptick in October. On Tuesday it was US$2.01 per chip, according to DRAMeXchange Technology, which operates an online clearinghouse for the chips. The Tuesday price does mark a slight rise from lows of US$1.90 per chip in March.

Prices of NAND flash memory, however, have continued a slow, steady slide. Mainstream 4G-bit NAND flash SLC (single level cell) chips were last quoted at US$3.75 per chip on Tuesday by DRAMeXchange, a 38 percent drop so far this year and down by more than half since last October.

DRAM revenue is expected to fall 15 percent this year to around US$54.9 billion, from US$58.1 billion last year, according to Gartner. In March, the market researcher halved its growth forecast for NAND flash revenue to just 15 percent growth this year.

A severe oversupply in the NAND market caused chip prices to fall at the end of last year, and Gartner "sees no respite in the short term."

Analysts blame memory chip makers for much of the falling price of memory chips, saying their big factory spending plans have caused the current chip glut. Many DRAM makers aggressively built new factories in anticipation of stronger demand from the switch to Windows Vista in PCs. The vast majority of DRAM goes into PCs, and Vista requires far more DRAM per box than XP.

Powerchip said the two new factories, which make cihps on 12-inch wafers, will eventually reach an output of 60,000 silicon wafers per month each. Silicon wafers are the raw material for chips and once finished, each wafer contains thousands of chips, which are cut, tested and then packed in protective coating before placement inside PCs.

The company will hire around 3,600 workers for the new factories.

Powerchip already operates three 12-inch wafer factories in Taiwan, in addition to a joint venture with Elpida of Japan called Rexchip, which runs a 12-inch wafer factory in Taiwan and plans to build three more in coming years. Powerchip is the largest memory chip producer in Taiwan.

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