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Is MEMC mad to want to raise silicon wafer prices?

23 October 2009 | By Mark Osborne | Editor's Blog

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The recovering semiconductor market has prompted MEMC to raise the issue of increasing silicon wafer prices in the new year. As the industry downturn pushed the wafer producer into lowering prices as overall fab utilization rates plummeted and older 200mm fabs started to close for good, business went into the red. MEMC has just reported an operating loss during the third quarter of US$66.7 million.

“I feel comfortable in saying that and the price has been very low. It's not sustainable for many companies and that's not healthy,” noted Ahmad Chatila, President and CEO of MEMC in a conference call to discuss 3Q09 financial results. “So I'm actually optimistic, cautiously optimistic, that we'll be able to raise pricing in Q1 2010."

MEMC has plans to shut down wafer operations at two plants and shift production to overseas plants, citing the shift in market demand, though this will reduce availability of smaller sized wafers.

Chatila said that the company would attempt price rises of approximately 20%, while acknowledging that may not be an across the board success. He also noted that for some customers it’s unlikely they will be able to raise prices at all!

Coincidently, perhaps, Dan Hutchinson issued one of his ‘Maxims’ from his ‘wesrch’ website today with the headline ‘Maxims: When raising prices make a full-scale frontal public assault…’

Rather than thinking Chatila had lost the plot in giving advanced warning of its sales teams' intentions, Hutchinson noted the following strategy:

‘I always say it’s much easier to drop prices than it is to raise them. But it can be done. Here’s how to raise prices: tell everybody. Send a letter out to all and inform the media. This communicates to customers and competitors alike that you’ve made a bold move. The reason is that you need to first test if it will stick and the true test of this is if your competitors will follow. If not, you can quickly retrench and resume discounting, which should not be announced. This way you test the market and risk little.’

In the conference call, MEMC noted the memory recovery and claimed that capacity would increase, justifying its price hike. But this looks more like a smoke screen for the strategy highlighted by Hutchinson as Eli Harari of SanDisk noted in an earlier conference call this week that he believed NAND flash manufacturers would have limited capital available for actual capacity expansions in 2010. With the focus resting on technology node migrations, the vast majority of spending will have to go on immersion lithography tools for existing production lines.

Of course, we have seen a spike in utilization rates for both DRAM and NAND vendors as little new capacity has been added in 2009 and focus was on spreadsheet preservation. As Harari noted, this situation hasn’t changed much and shouldn’t differ without seeing a sustained recovery in profitability.

Capacity expansions for NAND, in his view, will be a 2011 affair, so the demand from wafer suppliers will improve in 2010 but not necessarily from the point of view of added capacity.

Chatila may not be mad in wanting to raise prices to return to profitability, but the jury is out on the timing. At least the maxim is logical and the timing is even better.

Here's hoping the maxim is correct and MEMC will raise its prices!

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Silicon wafer revenues climb as shipments fall - 07 February 2012

KMG Electronic Chemicals to raise prices by 18 percent - 28 April 2008

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