Chip tie up shows DRAM regaining luster

Chip tie up shows DRAM regaining luster

ASE, the world's largest chip packaging and testing company, has tied up with Powerchip in a joint DRAM venture, a sign the industry has turned a corner.

The world's largest chip packaging and testing company has tied up with Taiwan's biggest DRAM maker to invest $US50 million in a new company, saying the DRAM market has improved after years of oversupply and consolidation.

Chip packager Advanced Semiconductor Engineering (ASE) will invest $US30 million in the joint venture, while Powerchip Semiconductor will contribute $US20 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.

Since the turn of the century, many companies have avoided the DRAM industry. The bursting of the dotcom bubble caused DRAM sales to fall by a staggering two-thirds in 2001 to $US11.9 billion, according to Gartner Dataquest, a far cry from its glory days in earlier years. The industry peaked at $US41.8 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 static (SRAM), and image sensors, for profits.

Fortunes have improved dramatically for DRAM makers. Worldwide DRAM revenue is expected to rise to $US26.4 billion this year, up 6.2 per cent over $US24.8 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," chip industry analyst at SinoPac Securities in Taipei, James Huang, said.

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