Japan-based Elpida Memory, viewing that DRAM contract prices have dropped to close to variable cost of about US$1, has decided to reduce DRAM production in an attempt to curb price drops, some Taiwan-based DRAM makers hold the opinion that falling contract prices to below variable costs is not a criterion for deciding on output reduction.
Because Taiwan-based DRAM makers have larges debt ratios, the decision on output cuts should be made when contract prices slip close to variable costs rather than below variable costs, these makers argued. This is to reflect the cost of burrowing.
While DRAM makers vary in mainstream manufacturing processes, variable costs are roughly the same at US$1, according to industry sources.
Among Taiwan-based DRAM makers, Powerchip Semiconductor and Rexchip Electronics (of the Elpida Group) have also decided to cut production, while Nanya Technology and Inotera Memories have not followed suit. This is because Nanya has shifted a large portion of production capacity to production of specialty DRAM and so has Inotera to production of DRAM used in servers, the sources pointed out.