Korean memory chip giants reluctant to cut production
By Nam In-soo, Reuters
May 3, 2001 (8:16 AM)
URL: /story/OEG20010503S0038
SEOUL-- Korean semiconductor makers, which supply more than 40 percent of the world's memory chips, are unlikely to see a market recovery until the fourth quarter with chip prices stymied by uncertain demand and inventory overhang.
``As of now, I don't see any concrete signs of chip demand picking up,'' Jay Kim, an analyst at ING Barings in Seoul, said on Thursday. ``Slower demand could lead to an inventory buildup, dimming prospects for any early recovery in prices.''
Reflecting the slowdown, Samsung Electronics, the world's largest DRAM chipmaker, said last week it had cut its planned 2001 chip capital expenditure by 1.2 trillion won ($912.5 million) to 5.4 trillion won.
Hynix Semiconductor, another major maker of dynamic random access memory chips used predominantly in personal computers, also nearly halved its expected 2001 chip capex from 1.7 trillion won in 2000.
Both companies posted weaker profits in the first quarter on falling memory chip prices, with little immediate respite in sight.
``I thought that the DRAM market had hit bottom,'' Stephen Buckler, a commodity manager at NECX.com, an online global electronics trading network, said in a report issued last week. ''Yet, the recent slide in pricing indicates that we should expect another rough quarter.''
Prices of all standard chip products have been near or below production costs.
The 64M (8X8) PC133 has dropped to around $2 and the 128M (16X8) PC133 has fallen to close to $4, down about 30 percent from early April, according to NECX.com.
``Several weeks ago, Dell stated they were going to stand by their quarter's numbers and indications from the Taiwanese motherboard manufacturers were that business was improving. But the reality is that the market has worsened and not improved,'' said Buckler.
The Semiconductor Industry Association (SIA) said on Wednesday worldwide sales of computer chips in March fell seven percent to $14.40 billion from February levels as an oversupply of chips and a weaker economy sent the industry further into a slump.
``We continue to believe that the industry will complete the inventory correction in the third quarter and the recovery will commence in the fourth quarter,'' SIA president George Scalise said.
Despite a glut in DRAM supply, Samsung and Hynix, both protective of their market share, are loathe to cut their production.
``No DRAM maker in the world would unilaterally say 'We're cutting production','' said James Chung, a spokesman for Samsung. ``A cut in output would lead to a drop in sales, which simply means forfeiting market share.''
Memory suppliers said they would take a more tactical approach this year to tide over the trough of the chip downturn by diversifying their product portfolios into more profitable items, including EDO (extended data out), DDR (double data rate) and Rambus.
Samsung's first-quarter earnings were helped by strong margins for Rambus DRAMs. It said it would raise its monthly Rambus DRAM output by 50 percent to 15 million units beginning in June, bringing the total to about 150 million by year-end.
Rambus chips, more expensive than the more common DRAM chips, use licensed technology from Rambus Inc to speed up performance.
Samsung has 65 percent of the global Rambus market, which is expected to double to 600 million units by the end of 2002 from the end of this year, estimated Jon Woo-jong, chip analyst at SK Securities.
How fast chipmakers can shift to more advanced processing technologies will also prove to be crucial to their cost-cutting efforts, analysts said.
``Samsung has said it would complete a switch to a 0.15 micron manufacturing process in the second half from the current 0.18 micron, which could certainly boost output at a lower price,'' said Lee Chang-kyung at Shinhan Securities.
Hynix, which adopts a 0.18 micron technology for most of its products, said 40 percent of its chips would be using the faster 0.15 micron processing technology by year-end.
Shares of Samsung Electronics, which shed 41 percent of their value last year, have risen 45.6 percent this year to close at 230,000 won on Thursday, outperforming the broader benchmark KOSPI, which was up 15.8 percent from the end of 2000.
``Reflecting our belief in the company's fundamental value, and reinforced by the performance of its non-semiconductor divisions, we raise our target price to 275,000 won from 250,000 won previously,'' ING Barings said in its latest report, saying it has a ``buy'' recommendation on the stock.
But brokerages rated Hynix ``neutral,'' citing its financial problems rather than the chip industry downturn. ``Hynix is also undervalued, but it is certainly not a good buy until it resolves its financial woes,'' said Lee at Shinhan Securities.
This year, Hynix has shed 14.8 percent to 3,430 won as of Thursday's close.
Hynix has been plagued by its debt problems since last year, a legacy of the 1997 Asian financial crisis after which banks were reluctant to lend.
The cash-strapped chipmaker has to pay 2.76 trillion won of its 5.67 trillion won in maturing debt this year. |
