Financial Analysis of three Major Taiwanese Module Vendors

The three major module vendors of Taiwan -- ADATA, Transcend, and PQI, each has different management policy and sales strategy.  ADATA place equal emphasis on its own branding as well as OEM sales and aggressively develop FLASH products and expand its market share. Transcend excels in managing its branded products, creating new frontier within low gross margin. PQI focuses its attention on creating trendy product especially in the FLASH sector. Their difference in sales strategy yielded different financial results. DRAMeXchange will perform a multifaceted analysis of their management performance.

1. Profitability

Financial Performance

From figure-1, it can be seen that peak and off-peak season in DRAM market is not as apparent as it was in the past. In its place is high pricing volatility affecting overall profitability of the industry. This is evident in pricing of DDR2 512Mb chips that reached the height of over US$6 per chip in Q3 and Q4 of '06, but fell to near US$1 by Q3'07. Despite of this volatility, revenue that reached new height in '06 did not fell nearly as much in '07; in some instance even exceeded that of the peak in '06. Of course the revenue fell is related to the volatility in DRAM pricing, but the revenue increase from FLASH products, and aggressive new product development and expansion in market share allowed for continued increase in revenue.

1-1 Operating Income

Although ADATA has fairly high revenue, but overall operating income is below that of Transcend and operating income falls significantly in 2007, owing to the sharp fall in DRAM price and excess inventory. Although its revenue rebounded in Q2'07, its earning remains lackluster in contrast to its revenue. Its rebranding and new product introduction effort in Q4'07 should help increase its net earning.

Short term earning of Transcend is excellent and complemented by it stable revenue. Operating income also appears to grow steadily.  The price increase of FLASH during Q1'07 and market share increase for its own branded products points to overall earning in '07 to exceed that of '06.

Internal issues in '05 negatively impacted PQI, causing its operating income to go into negative, leading to lower than expected earning. In Q2'07 it is impacted by DRAM and FLASH price fluctuation and excess inventory leading to negative operating income. But with successful introduction of new FLASH products in Q4, its outlook will improve.

DDR2 branded chip prices plummets; DDR2 eTT spot price stable but may still spiral downwards

In the spot market last week, eTT price held steady with DDR2 512Mb eTT price slipping to US$1.03 closing on 11/5, down from US$1.05 closing on 10/29, showing a rough 1.9%. Meanwhile, compared to the stability in eTT die market, branded dies showed a larger drop in price with spot price dropping from US$1.32 closing on 10/29 to US$1.13 closing on 11/5, a rough decline of 11%.  From market observations, the reason for this decline in branded die price this week, in addition to the continued weakness in demand, is primarily due to the appearance of US$19 OEM memory modules which translates to roughly US$1.0 per die.  Given that the decline in branded die price will necessarily affect the eTT die price and that the current inventory levels continue to be high for both module vendors and spot market, it is highly possible to see DDR2 eTT die price approaches or even drop