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.