Korean Manufacturers Reduce DRAM Facility Investment
World DRAM leaders such as Samsung Electronics Co, Ltd and Hyundai Electronics Co, Ltd are planning to reduce their facility investments this year in order to secure floating money and reverse the decrease in profits caused by an over-supply of DRAM, according to industry sources here.
Along with DRAM's price drop, which was influenced not only by an over-supply but also by negative forecasting on the semiconductor market, both companies are to delay plans for starting new DRAM production lines. Planned investment is expected to be reduced by US$830 million to US$1.67 billion.
Domestic companies that are highly reliant on Samsung and Hyundai, including LCD equipment and material manufacturers, will have difficulty surviving. The semiconductor and LCD equipment market is therefore forecast to grow at a rate of only 4-5% this year, compared to 98% in 2000.
Samsung originally targeted the facility investment amount to be around US$3.92 billion in the semiconductor sector and US$830 million in the LCD sector this year; however, they are considering reducing the total to US$3.3 billion. In conjunction with this, the company will start full operation of the system LSI production line, now under construction, in 2002. Meanwhile, the new DRAM fab is expected to be started production later this year or early next year.
"We made a policy to delay any investment plan in those sectors which do not affect largely on our market predominance," said a Samsung executive. "According to our own investigation, we found out that we could save US$1.67 billion at least if we delay the starting period of a new production line for 3 months," he added.
Hyundai also intends to concentrate on paying back its debt of US$5.25 billion, avoiding any unnecessary new investments this year. Hyundai's budget for new facility investment has been revised from US$2.3 billion to US$1.25 billion. The company does not have any further investment plans for new DRAM production lines, including a 12-inch wafer line, in the next 2-3 years.
"We expect that 60% of the existing production lines could be produced, using the 0.18micron process. And we won't be in much trouble if we exclude plans for investment in a 12-inch production line this year," said Jong-Seop Park, president of Hyundai.
Market Influence
Analysts of the semiconductor market in Korea suspect that the DRAM manufacturers are cautious of new facility investments because DRAM prices are expected to remain low until early this year. Their strategy seems to be to focus on highly integrated DRAM production by improving the performance of existing production lines.
The demand and supply of DRAM this year will be greatly affected by the investment reduction plans of Samsung and Hyundai. "As two top manufacturers are trying to control the DRAM output, the market will be more balanced between demand and supply, with increasing prices more or less after the second half of the year," said analysts.
Meritz Securities, a domestic securities company, forecasts that monthly (standard 64 Mbits) DRAM output worldwide will shift from 350 million units to 461 million units this coming June - a 31% increase. The figure excludes output from Samsung's new (11th) production line. Samsung expects the new line to cause a more serious decrease in DRAM prices. Without any new production lines started this year, Samsung's DRAM production will be increased by 40-50%.
Semiconductor and LCD equipment and material manufacturers, which are influenced by Samsung and Hyundai's plans, are worried about a failure to meet sales goals. "As the facility investment plans of top DRAM manufacturers are delayed, we hardly think we can make our sales goals work out. We are focusing more on exports now," said a semiconductor equipment manufacturer.
Daewoo Securities also forecast that the semiconductor equipment market will show a 45% annual growth (on average) in 2001 through 2002.
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