Elpida shares jump on bargain hunting

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TOKYO (Global Markets) - Shares in Elpida Memory Inc (6665.T), the world's No.3 maker of dynamic random access memory chips, gained the most in two years on Friday amid a rise in DRAM spot prices and a view among investors that the stock had fallen too far in recent trade.

The shares, which rose 17.6 percent to 535 yen, had shed more than 40 percent in the month to Thursday's close, battered by Elpida's move to raise $990 million to finance its expansion in cutting-edge chips for smartphones and tablet PCs.

The stock, which hit a 2- year low this week, had seen its 14-day relative strength index drop to 21 as of Thursday, below the 30 line where stocks are deemed oversold.

A trader at a foreign brokerage said that a number of factors were lifting the shares, including Wednesday's news about Abu Dhabi state-owned fund Aabar joining South Korea's STX Corp (011810.KS) to bid for Hynix Semiconductor (000660.KS) and a rise in chip spot prices.

"Heavily shorted Elpida is being bought back on hopes that there will be some changes in the DRAM industry," he said.

The percentage of shares outstanding on loan at Elpida stood at a still-high 7.8 percent as of August 24 at 459 yen, down from a peak of 19.5 percent at the end of July.

Elpida has repeatedly disappointed long-term investors by raising capital and diluting shares to stay competitive against bigger South Korean rivals Samsung Electronics (005930.KS) and Hynix, which have more scale.

To stay relevant, it aims to take the lead in advanced 25-nanometre chips, which pack more power onto each sliver of silicon than existing DRAM chips, hoping to gain an edge in mobile memory used in tablet PCs and smartphones.

Friday's jump was the biggest single-day jump in two years for the chipmaker, which has lost 90 percent since its shares peaked at the end of 2006. Trading volume hit a six-week high.

Weak chip prices have weighed on chipmakers, with even market giant Samsung warning of fragile consumer demand.

Spot prices for DDR3 2Gigabit type DRAM chips were up 3.6 percent to $1.01 in Friday afternoon trade according to DRAMexchange, but analysts say prices are well below cost for many chip makers.

Elpida, like No.2 NAND flash chipmaker Toshiba Corp (6502.T), hopes Apple Inc's (AAPL.O) patent war with supplier Samsung will mean more sales to the maker of iPhones and iPads, sources have said.

(Reporting by Tokyo Newsroom; Editing by Nathan Layne and Chris Gallagher)