Tech starts week in the doldrums

The global technology industry ended last week on a down
note after electronics giant Best Buy issued a profit warning and DRAM prices
fell again, but the troubles may be good news for bargain hunters if they lead
to lower prices.

Best Buy Friday lowered its profit expectation for its current fiscal year,
which ends March 1, 2008, to earnings per share of US$3.05 to $3.10 from previous
guidance of $3.10 to $3.20 due to slower after-holiday sales, the company said
in a statement.

The largest electronics retailer in the U.S. expects slower sales of home theater
items, MP3 music devices, and digital imaging gear than previously anticipated
in the current quarter, it said. It also pointed out that video gaming sales
have slowed, but blamed the trouble on inventory shortages.

The company also expects its fiscal fourth quarter same store sales to decline
compared to a year ago, causing it to cut its full year same stores sales target
to nearly $40 billion this year, a gain of 2.5 percent to 3 percent, compared
to a prior forecast calling for 4 percent year-over-year growth.

"This is the first same store sales decline since the first quarter of
2002, (Best Buy's fiscal second quarter of 2001) and in line with the economic
slowdown in 2001," said Warren Lau, research analyst at Macquarie Securities
in Hong Kong.

Best Buy's troubles could be an indication of slower consumer spending in the
U.S., and could raise recession fears, analysts said.

DRAM (dynamic RAM) prices are also on the decline again after hopes a nascent
rebound had started early this month. Prices of the chips ticked up ahead of
and during the Lunar New Year holiday, which is celebrated in China, Taiwan
and elsewhere, as people in those countries bought more PCs as gifts and some
companies built inventory.

But DRAM prices resumed their slide at the end of the holiday. Last week, spot
prices of mainstream 1G bit and 512M bit, DDR2 (double data rate, second generation)
DRAM chips that run at 667MHz fell 10 to 12 percent last week to $1.88 and $0.90,
respectively, according to industry researcher inSpectrum Technology.

The price is below the cash cost for all DRAM makers and the price drop will
likely continue in the first half of this year, said Lau. DRAM makers continue
to churn out more and more chips in new factories, with some factories just
now being finished. Bit supply growth is expected to be 80 percent year-on-year
in the first half of 2008.

The DRAM glut should keep the chips cheap for a while. Market prices normally
take about a month to filter down to users, according to one DRAMeXchange analyst,
and users can benefit from lower prices in a few ways. PC vendors often increase
the amount of DRAM per computer when prices are low, or offer additional DRAM
as an incentive to buy a new PC. Also, the price of DRAM modules found in stores
will fall as retailers clear out their older, more expensive inventory.

IDG News Service

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