DRAM makers weather a wild week
By Jack Robertson
EBN
(02/01/02 16:01 p.m. EST)
Whither the DRAM market? OEMs and channel customers are asking after a week of surprising twists and turns.
The industry's ongoing consolidation saga grew even more turbid this week when Infineon Technologies A.G. proposed a cooperative alliance with Hynix Semiconductor Inc., even as Micron Technology Inc. declared that talks involving a possible acquisition of Hynix's stable of memory chip fabs had broken off.
In light of the Korean chipmaker's ever-shifting prospects, government officials, creditors, and even Hynix executives entertained the possibility that after weeks of negotiations to pair up with one market rival or another, the company might continue as an independent concern after all.
And, amid signs that business in the DRAM market continues to pick up pace, Hynix this week made the surprising announcement that it is putting its entire DRAM portfolio on allocation and had stopped selling chips through the spot market. The move came as something of a shock to independent broker Converge Inc., Peabody, Mass., and market research firm iSuppli Corp., El Segundo, Calif., which both claimed to be seeing plenty of Hynix DRAM in the spot channel.
Other DRAM vendors contacted this week by EBN said they had yet to place customers on allocation, though most agreed that supplies of many chip variations were tight and that lead times for some customers were beginning to stretch.
Korean crucible
Nowhere was the situation more confused than in Korea, where the fate of Hynix confounded an already perplexed industry. In whatever shape Hynix survives or doesn't survive, it will have a huge impact on the market, said Sherry Garber, an analyst at Semico Research Corp., Phoenix.
Hynix, which is carrying a mammoth $6.5 billion debt load, rejected Micron's offer to buy seven fabs after declaring the Boise, Idaho, company's purported $2.5 billion to $3 billion offer to be too low, according to sources. As that deal was collapsing, Infineon stepped in with a proposal to forge a DRAM development and possible production partnership that would not entail the outright purchase of any Hynix manufacturing lines.
Infineon confirmed the offer and said it was also talking to several Taiwanese DRAM makers, but did not offer details of its plans.
Hynix's creditors were slated to meet this week to reconsider their position, but called off the session for undisclosed reasons.
Farhad Tabrizi, the company's vice president of worldwide marketing, said one option Hynix is exploring would see the company maintain operations on its own. Rising DRAM prices and growing shortages for the rest of the year will make DRAMs a profitable business once again, he said. There's no reason Hynix couldn't continue independently.
However, other DRAM competitors were less sanguine that prices will continue to rise in the immediate future. Some said evidence of increased shipments can be explained by holiday PC sales and a huge spike in orders coming in December and January from white-box PC makers gearing up for the release of Intel Corp.'s 845D double-data-rate chipset. With those events concluded, the coming weeks may see a return to more seasonal sales patterns.
Nam Hwung Kim, an iSuppli analyst, said sharp spot market price increases in the last several months were driven significantly by white-box makers. With a slowdown in purchasing from this sector, the spot market price for mainstay PC133 128Mbit 8 8 SDRAM has peaked at $3.50 to $3.75, he said. The upcoming Chinese New Year and Korea's Lunar Holiday will also bring week-long plant closings in much of Asia and is expected to further dampen demand from white-box PC builders.
At the same time, the premium of DDR SDRAM over single-data-rate SDRAM has dropped to as low as 10% after shooting as high as 60% in the last two months, according to Mike Sadler, Micron's vice president of sales.
For many DRAM executives, the sheer number of market variables still makes it too difficult to determine whether rising short-term demand will be sustainable.
OEMs have only started to ramp up production of their Pentium 4 DDR PCs, and any strong orders from this sector could offset a slowdown in the white-box market, said Tom Quinn, vice president of sales at Samsung Semiconductor Inc., San Jose.
Hynix's Tabrizi noted that inventory levels at both customers and suppliers have been whittled down to just a few weeks, which leaves little by way of a safety net. Any pickup in demand will result in immediate ordering of DRAMs because there isn't the inventory available in the channel, he said.
Historically, February and March have seen a post-holiday dip in demand, though analysts and suppliers failed to reach a consensus as to whether the trend will govern the market in the next two months.
Longer term, however, Samsung's Quinn said that if corporate profits have bottomed out and start improving, then we can expect to see the commercial market kick in.
There's a huge backlog of 1999-vintage PCs in business that need to be replaced. And when IT departments start ordering, they will also be buying PCs with much higher memory content than ever before-averaging 200Mbytes of main memory or better, Quinn said.
Intel's expected launch this spring of an 845G DDR chipset with integrated graphics is also expected to help corporate demand. Corporate America loves integrated graphics, said Peter Glaskowsky, an analyst at MicroDesign Resources Inc., Palo Alto, Calif.
Supply scenario
Some observers have speculated that the lack of new DRAM fabs could lead to a shortage of memory chips this year, claiming not enough new capacity is coming on line to meet rising demand. Infineon is starting to ramp up DRAM production at its 300mm-wafer fab in Dresden, Germany, and at a 300mm joint venture fab in Taiwan with Mosel Vitelic Inc. Industry estimates vary on how quickly the fabs, which can double the number of die relative to a 200mm wafer, will begin contributing to global supply.
Hynix is increasing production again at a fab in Eugene, Ore., that had been closed for six months for a production upgrade, and Micron has available capacity at the fab in Manassas, Va., that it bought late last year from Toshiba Corp.
Moreover, executives at several leading DRAM manufacturers observed that there are other ways to increase output.
As most major producers move aggressively to 0.15-micron processing, the die shrinks will result in higher yields, which effectively is an increase in capacity, Micron's Sadler said.
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