Thread - Samsung's view on RDRAM:
(from Deutsche Bank's research report on Samsung Electronics' convertible bonds, dated 30 Aug 1999, written by their analyst Lloyd Ong)
Please excuse me for any typos, since it's going to be typed manually...
Samsung Electronics Corp. (SEC) seems strangly reluctant to commit capital into Rambus-production-related investments prior to it becoming better established, and their tone seems overly cautions, given their reputation for aggressive capital investments funded by plentiful capital. They also predict that both PC133 and DDR will have longevity in the marketplace.
SEC is the "500 pound gorilla" in the DRAM business, and I think that their views will probably come pretty close to how the marketplace is going to adopt RMBS, so I would recommend that everyone pay close attention to what they are saying. Personally, I have a huge position in RMBS at this moment, and though I'm very optimistic for their long-term future, my trading instincts tell me that I should sell into any hype surrounding the launch of the 820 chipset, because the road ahead is still paved with lots of bumps...
Excerpts:
The key focus for SEC in the near term will be on the development of next generation devices such as PC-133 128Mb DRAM and 256Mb. With the newly-installed line 9 and the planned upgrade of the existing line 8 from 0.23-0.25 micron to 0.18 micron design rule by year-end, the company is expected to ramp up monthly production output of 128Mb chip from 4m to 12m by year-end. As for the mainstay 64Mb chip, SEC plans to boost monthly production capacity from 24m to 30m by the end of next year, mainly through the existing lines 6 and 7 (to be upgraded) as well as from the planned expansion of the Austin facility in Texas. Management believes that 64Mb DRAM will remain the key driver of revenue and earnings growth in the near term until the market transition to 128Mb (anticipated in the first half of 2000). On the 256Mb chip, SEC has indicated that it is still in the sample stage with existing capacity of only 1.5m chips, targeted mostly for the high-end PC segment.
The recent plunge in pricing of 128Mb to a low of USD14 from USD20 a month ago we believe is a temporary anomaly from a sudden supply influx. In our view, if the low pricing of the 128Mb persists under a so-called cross bit situation, it will eventually crate a surge in 128Mb chip demand, thus intensifying a supply shortage, possibly by the fourth quarter of this year. Therefore, as prices rebound the cross bit situation will dissipate, bringing the demand and supply curve back to normal.
Rambus is still in a transitional phase
On Direct Rambus, SEC plans to begin mass production of the chips by the fourth quarter to meet growing demand. Monthly output for the 128Mb and 144Mb Rambus chips will rise to 1.5m in the initial stage. However, SEC believes that the high-speed chip is unlikely to supplant the latest PC-133 SDRAM as the industry standard in the near term. Even with the USD100m investment from Intel, the company is still cautious about launching full-scale production of the new chip in view of the delay associated with the chipset production as well as the high conversion cost. Apart from the conversion costs, chipmakers would also have to contend with costly investments in front-end processing tools, high-speed testers, special tooling and handling equipment and chip-scale packaging gear. We believe that it is only a matter of time becomes the mainstream standard adopted by the industry. Whether Rambus will capture the majority of the PC market depends on the price premium over its synchronized and Double Date Rate counterparts. If the price differential remains significant, then we could possibly see segmentation in the DRAM market going forward. Consequently, we could see a division of DRAM chipmakers during the transitional period - Direct Rambus players competing with Double Date Rate in the middle to high-end PC markets, other suppliers going after niche markets, and the remaining synchronized players with trailing edge DRAMs in the low-end PC segment. |
