Hynix deal collapse seen driving memory prices down
(Reuters 04/30 10:31:39)
By Ben Berkowitz
LOS ANGELES, April 30 (Reuters) - The collapse of the deal
by memory chipmaker Micron Technology Inc. <MU.N> to buy the
core assets of debt-laden competitor Hynix Semiconductor Inc.
<00660.KS> will drive a renewed decline in memory chip prices,
analysts said on Tuesday.
That spells bad news for the high-volume, low-margin
industry since chip prices have only just recovered to a level
at which manufacturers can make a profit after the bottom fell
out of the market in 2001, analysts said.
The board of Korea's Hynix rejected the Micron offer on
Tuesday, leading the company's chief executive to resign and
raising questions about how the company, which was bailed out
by creditors twice last year, will survive.
But the more pressing question among industry observers on
Tuesday was what the breakdown in talks would do to pricing for
dynamic random access memory, or DRAM, and other forms of
memory used in computers and other electronic devices.
The $3 billion asset purchase had been seen as supportive
for the prices of DRAM chips, which trade in commodity-like
exchanges, because Micron had been expected to take some of the
excess Hynix production off-line as it was upgraded through new
investment.
Under the terms of the now-scuppered deal, Micron would
have acquired all of Hynix's memory chip operations, leaving
Hynix as a manufacturer of non-memory chips for cell phones.
"We believe this outcome will impact the DRAM industry
negatively in the near term," said Keon Han, an analyst on the
Asian technology market for Bear Stearns, in a client note.
"One of the key factors that buoyed higher DRAM prices ...
was that (the) conclusion of the merger would tighten the
supply side further," he said.
Han said he expected memory chip manufacturers to restrict
supplies in order to adjust to the expected decline in prices.
CONTRACT PRICES COULD COME DOWN
Brokerage SG Cowen said it saw the collapse in talks
between the industry's No. 2 player, Micron, and No. 3, Hynix
as a catalyst to drive down DRAM prices for contracted
production from near $4.50 per unit to around the $3 spot rate.
The only silver lining for the industry is that Hynix could
now fail, the analysts said.
"Hynix's creditors have confirmed they will not provide the
firm (with) additional capital, and should prices deteriorate
further, the abandonment of its deal (with Micron) could be
positive (long-term) as it increases (the) possibility of Hynix
going away," SG Cowen said in a client note.
Merrill Lynch also said it expected 4 percent to 5 percent
of the global memory manufacturing capacity would now stay
online.
"Near-term it is a bit of a negative because Micron was
going to take some of that capacity offline while they upgraded
the Hynix (fabrication plants)," Joe Osha, Merrill Lynch's
senior semiconductor analyst, told Reuters.
Global DRAM pricing rose relatively sharply in January and
then held mostly steady through February before dipping in
early March, mostly in Asia, according to Merrill Lynch data.
Another closely watched barometer of industry pricing
power, the EBN index, showed an index value for 128 megabyte
DRAM, a benchmark, of 81.3 as of early April, up dramatically
from 12.5 in March 2001.
The EBN Price and Lead Time Index is calculated as the
share of chip buyers reporting higher prices plus one-half of
the share reporting no change in prices. A value above 50 means
that more see prices going up than down.
Lead times in March for 128 megabyte DRAM had also
lengthened to 10.8 weeks, versus only 1.5 weeks in the March
2001.
Bear Stearns said on Tuesday that spot prices for 128
megabyte DRAM modules fell 3 percent in Taiwan to $2.91 on
Tuesday from $3 on Monday.
According to the Converge Global Trading Exchange, a
Web-based trading platform, spot prices for the eight types of
128 megabyte DRAM it tracks ranged from $3.10 to $4.10 as of
early Tuesday.
(With additional reporting by Duncan Martell in San
Francisco)
((Ben Berkowitz, 213-955-6781; fax, 213-622-0056; e-mail,
ben.berkowitz@reuters.com))
REUTERS
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