S.Korean Memory Chip Giants Loathe to Cut Output
SEOUL (Reuters) - Korean semiconductor makers, which supply more than 40 percent of the world's memory chips, are reluctant to cut output even though an inventory glut and weak demand have set the stage for the industry's worst year ever.
``We are on high alert about the protracted slump in the chip industry,'' said James Chung, a spokesman for Samsung Electronics, the world's largest memory or DRAM chipmaker. ``But we don't see any need to cut output in the near future.''
Hynix Semiconductor, third-ranked global memory chip maker, also said it had not yet seriously considered a reduction.
Research firm Gartner Dataquest confirmed the sad state of the semiconductor industry on Thursday, saying the memory chip segment is in its worst ever decline.
Worldwide revenue of DRAM chips, the standard computer memory used in all PCs and servers, will decline by 55.5 percent to $14 billion, compared with $31.5 billion in 2000, it said.
A Gartner Dataquest analyst said production cutbacks from major players like Samsung, Micron Technology and Infineon Technologies would be the only thing that could save the DRAM industry from a record bad year.
``There is no universal consensus yet among chipmakers about an output cutback,'' said Samsung's Chung.
So far, only Toshiba Corp, Japan's biggest chipmaker, has publicly declared it would temporarily cut chip factory production, including a 30 percent reduction in output at its main memory chip plant, this summer.
Samsung has argued slashing production would lead to a drop in sales, which could risk forfeiting market share.
WEATHERING STORM
Analysts differ about when the industry would rebound with projections varying from the fourth quarter of this year to early 2002. But they say Samsung is one of the few companies well-positioned to capitalize on a rebound in the DRAM sector.
``I see Gartner has a point when it called for lowering output,'' said Jay Kim, an analyst at ING Barings. ``At the same time, I don't think Samsung will cut production any time soon.''
Samsung maintains favorable cash flow, helped by reduced capital expenditures, to weather the storm as well as having technological advantages that make it one of the lowest cost memory producers, he said.
DRAM prices have fallen off a cliff since last summer, when benchmark 64 megabit chips were sold on the spot market for around $9. The same chips now sell for record lows of $1.10 bid, according to U.S.-based ConvergeTrade.
Chip manufacturers are not profitable when prices are below $3, the threshold which DRAMs crashed through in early January.
Reflecting the market slowdown, Samsung said in April it had cut its planned 2001 chip capital expenditure by 1.2 trillion won ($922.3 million) to 5.4 trillion. Hynix also reduced its chip capex to 900 billion won this year from last year's 1.7 trillion.
PROFIT WARNING
The sharp fall in chip prices could cut Samsung's second-quarter earnings by half from the previous quarter, but its shares would remain a target for bargain hunting, analysts said.
``We expect our earnings to worsen into the second quarter, but not as bad as the market forecast,'' said Chung at Samsung.
Samsung posted 1.24 trillion won in net profit in the first quarter, up seven percent from the previous period, helped by strong margins in higher-end chips such as Rambus DRAMs and impressive contributions from non-semiconductor businesses.
Sales declined 5.5 percent to 8.6 trillion won in the same period.
Samsung has declined 17.7 percent to 193,500 won as of Friday from this year's high of 235,000 won in April. The benchmark KOSPI fell 5.4 percent from a year high of 633.16 points in the same period.
``We believe DRAM remains a highly cyclical, highly volatile sector with large upside potential,'' Goldman Sachs said in a report on Monday. ``A good entry point for investors looking to build positions in the sector is approaching.''
Goldman Sachs gave Samsung a ``market outperformer'' rating with a 12-month target price of 240,000 won.
But brokerages rated Hynix ``neutral,'' citing its financial problems rather than the chip industry downturn.
The cash-strapped chipmaker has to pay 2.76 trillion won of its 5.67 trillion won maturing debt this year.
It got a lifeline last Friday when it secured $1.25 billion in global depositary receipts.
Hynix closed down 3.2 percent at 3,200 won on Friday.
($1-1,301.0 won) |
