Editorial: DRAM unions could spell trouble for OEMs
By Jack Robertson
Electronic Buyers' News
(06/24/99, 01:42:05 PM EDT)
So now it's NEC Corp. and Hitachi Ltd. partnering on DRAMs. And there's probably more consolidation to come in a struggling DRAM industry.
It could be good news or bad news for OEM buyers, depending on how the erratic DRAM market plays out.
In any other industry, consolidation of suppliers spells more rational production and potentially stronger pricing. In DRAMs, so far it means increased supply, even lower prices, and a renewed battle for market share that can only make OEM purchasers rub their hands in glee.
That's because in all the DRAM marriages so far, there has been relatively little shutting-down of excess fab capacity. If anything, it's been just the opposite.
Micron Technology's acquisition of Texas Instruments' DRAM fabs will result in doubled output as the former TI facilities are eventually upgraded to 0.18-micron, leading-edge processes. Hyundai's purchase of LG Semicon won't result in the closure of any major fabs, but instead will keep most of both companies' memory plants operating at full tilt.
In their DRAM announcement, NEC and Hitachi likewise indicated that both will continue operating their current fabs, but with the facilities targeted to make a common future-generation memory chip.
Infineon Technologies (formerly Siemens' semiconductor business) has been actively courting a DRAM partner, so far without success. Even the Taiwanese DRAM players are starting to tie limited knots, with Vanguard International Semiconductor buying an 11% interest in Powerchip Semiconductor, the joint-venture DRAM foundry of Mitsubishi and Kanematsu.
The pace of DRAM marriages among second- and third-tier memory producers is likely to pick up markedly as suppliers with marginal production scramble to gain some economies of scale to remain viable in the scorched-earth market.
The NEC-Hitachi DRAM alliance's initial critical production mass will be 20 million 64-Mbit DRAMs per month. That about equals Samsung's current 64-meg output, but trails Micron's estimated monthly production of 25 million to 30 million 64-Mbit devices. The combined Hyundai-LG 64-meg output is probably 30 million a month or a little more, but it includes disparate types of chips that won't add up to a combined critical mass until Hyundai finds the resources to equip the fabs of both companies with common 0.18-micron processes.
The DRAM penchant to marry means that hardly any major suppliers are exiting the market these days, nor are big memory fabs being closed. The new DRAM unions can't risk losing market share by consolidating fabs, and instead must ramp up production at all their facilities to remain competitive.
So, for the time being, OEMs need not worry. The realigned DRAM industry is trying to pour out even more product into the market, and is thereby driving down prices faster than ever.
The time for concern will be what will happen if the DRAM industry coalesces into a handful of merged suppliers, each with about a 20% global market share. The chaotic market of the Lancaster Theory-in which no supplier holds at least a 20% share-will cease to exist. A DRAM oligopoly could emerge, with surviving giants no longer killing each other in a market free-for-all, but instead aiming for more rationalized pricing.
For now, however, wedding bells aren't breaking up that old DRAM gang of mine.
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