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Is it time to buy memory chip makers?
Tue Dec 9, 2008 9:30am EST
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By Rhee So-eui
SEOUL (Reuters) - Shares in memory chip makers have crashed as the industry suffers a prolonged downturn on rapidly declining electronics demand, with some makers seeking bailouts to stay afloat.
Asset manager AllianceBernstein (AB.N: Quote, Profile, Research, Stock Buzz) said on Tuesday it sold off a 5 percent stake in Hynix Semiconductor Inc (000660.KS: Quote, Profile, Research, Stock Buzz) held on behalf of its clients. Hynix shares are down more than 70 percent this year.
But some analysts feel the cycle is near a bottom and the time may be approaching to pick up top names such as Samsung Electronics Co Ltd (005930.KS: Quote, Profile, Research, Stock Buzz) and Hynix.
DIFFICULT YEAR AHEAD
"The bottom is yet to come," said Jae H. Lee, an analyst at Daiwa Securities. "Oversupply is a given fact until next year and chip companies will have to cut down capacity."
Lee said demand had weakened sharply since mid-November and makers were piling up inventory because chip prices were below production costs.
As memory chip firms are set to incur more losses in the coming quarters, other analysts also called for caution.
"We currently see no reason to be invested in the memory sector," said Robert Lea, an analyst with UBS. "We believe the industry recovery has been pushed out to 2010."
Hynix, which is seeking up to 1 trillion won ($693 million) in fresh funding from its shareholders, could see a dilution in value should stockholders agree to a new share issue.
SIGNS OF A BOTTOM
Recent news has only added to the grim outlook, from growing expectations that top player Samsung could post losses from chips to cost-cutting measures at Japan's Toshiba Corp (6502.T: Quote, Profile, Research, Stock Buzz) and Hynix.
However, these moves could signal the industry is at a bottom, said Jay Kim, an analyst at Hyundai Securities.
"Year-end electronics sales data could provide a good indication for investors who are weighing on when to buy," said Kim, who keeps buy ratings on Samsung and Hynix.
A fifth of investors he talked to in a recent investor meeting "think now is the time to buy as shares have fallen to a bottom due to mounting fears," Kim said.
Samsung, the world leader in dynamic random access memory (DRAM) and NAND flash memory, is set to outperform peers thanks to its strong balance sheet and as the company is set to gain market share from struggling rivals, according to UBS's Lea. Continued...
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