05.15.2001
Sweet memories? Not in 2001 anyway

• Memory chip design houses are struggling with stiffening price competition and weak demand. With inventory stacked high, price pressure has driven gross margin on DRAM down into negative 10-15% territory.

• The design companies are diversifying into logic IC to lessen the impact from the slump in demand for other products. Taiwan Memory Technology's (5468 'Tai Jing') LCD driver IC and related peripheral ICs will start to contribute revenue in 2H01, while ICSI (5473 'Xi Cheng') will also see shipment of ASIC and IA logic products in 2H01.

• ICSI's and Taiwan Memory's financial forecasts for 2001 point to expected declines in profitability of over 50%. We believe the current share prices of both companies, which have fallen around 60% since they listed in January, have factored in the dismal prospects down the road.

• VB Primasia Investment Opinion: From a recent visit to Taiwan Memory, we learned that demand for memory IC remains very weak and visibility poor. No turnaround is expected by the end of 2001. We are NEUTRAL on ICSI and Taiwan Memory.

AngelLo@Primasia.com +886-[0]2-2547-8865