Editorial: Pulling Asia out of the DRAM rut
By Matt Sheerin
Electronic Buyers' News
(06/25/99, 10:56:54 AM EDT)
A trio of EBN editors spent a week in Korea and Japan earlier this month, and the resulting dispatches from the trip provide tremendous insight into what's going on with Asia's once mighty but now struggling component suppliers. (Go to www.ebnonline.com/digest to read what our editors sent in from overseas.)
Over the past few years, most of these companies have been reeling from a huge drop in chip prices, as well as from severe economic problems in their own countries. As a result, they have dramatically cut capital spending and capacity expansion, at the same time focusing on core competencies and shedding certain businesses.
Executives expressed optimism that these changes, coupled with signs of a semiconductor turnaround, would put them and their Asian competitors back into a growth mode. There appears to be much more restructuring to be done, but the companies are on the right track. As EBN's Jack Robertson and Andrew MacLellan reported a few weeks ago, four of Japan's leading DRAM makers-Fujitsu, Hitachi, Mitsubishi, and Toshiba-are moving away from the volatile mainstream PC memory market and into more profitable and reliable sectors such as servers, communications equipment, and consumer electronics.
Aside from putting those companies on a more profitable course, the cutbacks in PC DRAM production, in theory, will keep the global memory supply down and therefore keep prices from falling.
But don't bet on this happening anytime soon. For one thing, there's NEC, the lone Japanese DRAM maker publicly committed to the mainstream PC market. As EBN's story put it, “NEC hopes to hang in as one of a handful of very large DRAM vendors able to subsist on razor-thin profit margins by churning out tens of millions of commodity devices.”
The rest of the “handful” includes Micron Technology, of the United States; a couple of Taiwanese companies; and several Korean outfits. And while the Korean players have restructured as well, there are few signs that DRAM capacity will shrink as a result. In fact, the merger of Hyundai Electronics and LG Semicon won't result in any manufacturing consolidation for at least 18 months.
In other component sectors, both Korean and Japanese companies are wisely investing in technology development and capital expansion. Most noteworthy are moves by LG LCD and Samsung Electronics to extend their leadership positions in the flat-panel-display market.
Only time will tell, however, whether these and similar moves by other Asian companies will be enough to get out of the DRAM rut they've been in for so long.
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