Overcapacity vexes mercurial Asia microchip market
By Jeffrey Parker
TAIPEI, March 30 (Reuters) - Asia's microchip makers, still saddled with excess capacity, face more months of mergers and consolidation even as they claw their way ever faster up the technology curve, experts said on Tuesday.
In the market for dynamic random-access memory chips, the list of competitors will slowly shrink and the survivors likely will be established makers with strong technology and a good read on the famously fickle DRAM market, they said.
''There will be continued consolidation as we are still in a state of overcapacity,'' Daniel Heyler, a microchip analyst at Dataquest in Hong Kong, told Reuters Television in a discussion of the outlook for Asian semiconductors.
Heyler said some firms would retool their older DRAM wafer fabs for the less-fickle ''foundry'' business, where special-use logic chips are fashioned to customers' specifications, while investing in the most advanced technologies to make DRAM.
Others, he said, would quit DRAM altogether to make microchip products that are ''more profitable or make more sense from a marketing or long-term product development standpoint.''
Heyler said South Korea and Japan would retain their strong lead in DRAM as production shifts to a 128-megabit standard from 64-MB, but he expected both to yield some market share to Taiwan, whose economy has not slumped into recession.
''Higher margins will be earned in Korea and Japan,'' he said, citing those markets' technological edge.
John Stern, a technology consultant in Tokyo, said Japan's DRAM heavy hitters likely would stay in the game, while trying to line up cost-sharing technological alliances.
''The larger players will remain, but some of the smaller players...will get out. In addition, we'll see more joint collaboration in research,'' Stern told RTV.
Steve Meyers, deputy head of research at Jardine Fleming Securities in Tokyo, urged caution, saying investment returns in Japan over the next year or less were ''unlikely to honour the expectations'' raised by sharp recent gains in share prices.
Doug Andrey of the Semiconductor Industry Association in California's Silicon Valley said foundry chips had a better outlook than DRAM as device-makers that once made all their chips themselves now prefer to farm out the costly process.
''As we evolve in the industry where companies concentrate on their core competencies, there's probably a high potential for growth in these (foundry) markets,'' Andrey said.
Andrey said microchip innovation was accelerating and wafer fabs were shrinking their die sizes up to five times a year rather than biannually, meaning ''effective'' memory-chip capacity was growing despite a nominal decline in wafer fab numbers.
As a result, analysts said, any price stability -- as in today's 64-MB DRAM market -- would be fleeting.
Although Asian chipmakers had begun to rival U.S. leaders in technology, analysts said the United States still dominated demand because liberalisation of its technology and financial markets was driving intense product innovation.
Heyler said the once-rocketing price-performance rises were slowing, giving manufacturers a chance to catch their breath.
''There's no such thing as a bottom. Prices per megabit will continue to decline,'' Heyler said.
''However, efficiencies are increasing, yields will increase and die shrinks will continue. What we've seen in the past three to four months is a deceleration in the (price-per-megabit) decline. We are not seeing the dramatic declines that we saw since 1995,'' he said.
''There is a glimmer of hope and lot of optimism that we are positioned for an upswing...but I don't think the industry is quite ready for a huge growth in revenues quite yet.''
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