KT: "Consolidation Becoming Stark Reality in Memory Chip Market"
Somewhat incoherent article but still interesting for all the quotes it contains. Lots of signaling and even overt coordination going on right now. Things are looking long:
- with Hynix capacity brought under control by Micron, most capacity will be under control of a rational oligopoly of three tier-1 players (Micron, Samsung, Infineon)
- with the Japanese dropping out, more capacity is removed and the major source of technology licenses for new entrants will be drying up, too
- the Taiwanese are generally quite rational and can be coordinated by Infineon, who has good connections in Taiwan
Happy investing,
ohkami
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Consolidation Becoming Stark Reality in Memory Chip Market
Korea Times
By Nho Joon-hun
Staff Reporter
Consolidation is nothing new in this 21st century industry and it is increasingly becoming a stark reality in the memory chip market which is quickly emerging from a year-long slump.
Gone are the days when chipmakers were engaging in cutthroat competition in which they tried to drive their competitors out of the market in the hope of gaining more control over it.
In fact, the world's four largest producers of dynamic random access memory (DRAM) chips are openly talking about strategic alliances and Hynix Semiconductor and Micron Technology are well into their negotiations toward a memorandum of understanding.
At the same time, the open consensus is that there is a need to collaborate on controlling production, something which would not have been imaginable among competitors a couple of years ago.
"The recognition is that the recent increase in DRAM prices is the result of reduced production and not an increase in demand. We are determined not to create another oversupply which will certainly drive down prices," said one executive of a local chipmaker.
He said the pattern of higher prices leading to increased production which in turn causes an oversupply and plummeting prices is something that has frequently been experienced in the DRAM market.
Accordingly, Samsung Electronics has already announced that it will be cutting facilities investment by 30 percent and both Micron and Hynix have indicated that they will keep their investment down as well.
"Unlike in 1998 when the DRAM makers were getting out of a slump, producers are refraining from investing aggressively in new facilities in anticipation of rising demands," the executive said.
He said the difficulties of the past year, which left even the most competitive makers with plunging profits, have been an important lesson and they are not about to have a repeat performance.
"If the four leading companies are able to control their production and not act independently to take advantage of the rising prices, they can prevent another cycle of spiraling prices," he added.
As rumors of consolidation spread, Infineon chairman Ulrich Schumacher arrived in Seoul Friday to meet with Hynix on a potential strategic alliance and word was out that he will also meet with Samsung.
He said, "The market is now left with the Big 4 (Samsung, Micron, Hynix and Infineon) and it is time for us to collaborate through dialogue to tide over the difficult conditions."
While refusing to comment on whether or not he was meeting with Samsung, industry sources said there have been numerous contacts at the working-level on "some type of collaboration."
"For Samsung, the situation is not quite so simple, being the leader in the market, especially with Hynix and Micron opening negotiating strategic alliances," one analyst said.
However, Samsung is facing a unique situation in which collaborating with anyone means giving them the benefit of its leadership in both production and technology.
"Samsung currently commands about 29 percent of the market and it is about to launch the processing of 300-millimeter wafers. It is also about to make the transition into 258 megabit chips," he said.
Accordingly, collaborating with anyone could result in a slowdown in the restructuring process which has already seen numerous small DRAM makers succumb to challenging market conditions.
"Still, insisting on complete independence could leave it isolated as the remaining three of the Big Four strike various forms of strategic alliances," the analyst said.
Indeed, the synergy effects from combining Infineon's 300mm wafer process facilities, Hynix's processing technology and Micron's financial power could pose a powerful threat to Samsung.
"Strategic alliances, especially among more than two companies are not a simple task but this is perhaps the only way to compete on square grounds with Samsung's leadership," the analyst said.
On the other hand, analysts have also been talking about the possibility of Samsung deciding to make a bid for Hynix if the price is right and if creditors are willing to write off a considerable portion of Hynix's debt of about 6.7 trillion won.
"Samsung has been saying that it is absolutely not interested but the benefits from taking over Hynix's memory business is significant. Its leadership will not be challenged for years to come," he pointed out.
Meanwhile, Hynix's creditors said yesterday that they have made strong headway in their negotiations with Micron, having narrowed much of their differences regarding the price.
Micron has made a most recent offer of $3.7-3.8 billion with Hynix insisting on $4.7 billion plus a portion of its debts for taking over its memory device processing lines and securing about 20 percent of the remaining non-memory business.
Despite the news of progress in talks, Micron officials would not say during a semiconductor event in Sun Valley, Idaho where Micron is headquartered, where it stands in the negotiations, only confirming that talks for a strategic alliance are underway.
jakenho@koreatimes.co.kr
2002/02/03 20:19
korealink.co.kr |
