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Memory chips, TFT-LCDs drop in sales, prices in 2000
Fortunes quickly went from boom to bust for the domestic semiconductor and display manufacturers in 2000.
The year began with expectations of strong sales and high profits in memory chips and TFT-LCDs, which are Korea's main export items.
The first half lived up to the optimism, with demands and prices stable and domestic firms' leadership in the global chip and display markets unchallenged. Around the beginning of the second half, however, come a sudden supply glut and price slide, which squeezed the profits of the Korean electronics giants.
The depressed market dealt a serious blow to Hyundai Electronics Industries (HEI), which is struggling under heavy debts and whose third-place position in the global dynamic random access memory (DRAM) market is threatened by foreign rivals.
Samsung Electronics is seen as relatively unscathed for its technological advantage and lower manufacturing cost, but has been forced to review its long-term strategy and cut down its sales estimate for 2001.
DRAMs
Korea's DRAM exports have seen a 32 percent growth year-on-year, with the total from January to November reaching $24.1 billion, according to the Korea Semiconductor Industry Association (KSIA). The figure for the entire year 2000 is expected to be a record-high $26.2 billion.
The strong performance is largely attributable to the first-half sales. DRAMs were trading at up to $8 a piece in the spot market during the first six months, amid robust sales of personal computers, which account for some 70 percent of demand for DRAMs.
The industry expected that the bullish PC demand will continue through the end of the year, during the back-to-school and Christmas seasons, and the belief triggered a massive buying spree among PC manufacturers that led to a supply shortage and steep price rise.
Against the prediction, PC sales slowed down. Companies started to empty their inventory bringing their products to spot markets, suddenly reversing their supply-demand situation. Aggravating the excess in supply, chipmakers have continued to improve their output capacity by shrinking the size of their chips.
As a result, DRAM prices plummeted to their lowest rating in more than a year. Spot prices of 64M DRAM, current mainstay, have been hovering around $3-3.2 since Dec. 21, but they once fell to $2 the previous week. The next generation 128M DRAMs also suffered from weak prices, quoted at $6 this week.
The price crunch in the spot market also drove down the long-term contract prices, which are believed to lurch near manufacturing costs.
In addition, foreign rivals to Korean chipmakers are putting up increasingly stronger competition.
Micron Technology of the United States and Infineon of Germany have been quickly boosting their presence in the next generation memory market. The U.S. firm's 128M DRAM market share is estimated at 43 percent, beating Samsung, which accounts for 23 percent. The German firm is also emerging as a strong contender to Samsung in the 256M DRAM market.
The latest challenge came from Hitachi and NEC, which announced plans late last month to set up a joint venture to produce next generation DRAM chips. With their combined share estimated at 13 percent, the joint venture will emerge as the fourth largest DRAM maker in the world, following Samsung (20.7 percent), HEI (19.3 percent) and Micron (14.4 percent), according to research firm Dataquest. NEC and Hitachi aim to increase their share to 17 percent by 2004, threatening to outstrip HEI.
Korean manufacturers are striving to diversify their chip business. Samsung and Hyundai plan to boost their production of nonmemory chips and more high-value added chips like flash memory.
Experts say the semiconductor sector will experience a shift of focus from PCs to digital appliances like mobile phones, Web TVs, and digital music players and cameras. Demands for chips used in server computers, networking equipment and data storage devices are also expected to grow faster than those used in PCs.
The global chip market in 2001 is expected to reach $250 billion, a 20.3 percent growth year on year, according to a Merrill Lynch estimate. Demand for DRAMs is estimated at $41 billion, slightly higher than this year.
TFT-LCDs
Throughout the year, Korean TFT-LCD makers maintained their leading position in the global market. Estimates by Display Search, a market research firm, said market shares of Samsung and LG.Philips LCD were 14.9 percent and 10.3 percent in the third quarter.
The global market in the period topped $3.7 billion, a 39 percent growth year-on-year, but the fourth-quarter revenue is expected to shrink 1 percent to $3.6 billion.
The decease is attributed to an oversupply stemming from Taiwanese firms' entry into the market and the sluggish PC sales, which led to the decline in prices and profit margins of manufacturers.
According to market research firm International Data Corp. (IDC), 14.1-inch panels, accounting for 60 percent of laptop computers, sold for $400 per unit in October, down from $540 10 months ago. The price of 15-inch panels, taking a 90 percent share in PC monitors, also dropped from $580 to $440.
The two products are core products of domestic LCD makers including Samsung, LG.Philips and HEI.
Domestic companies are faced with new competition from Taiwanese firms in monitor LCD markets. Most in Korea expected Taiwanese firms to focus on the notebook LCD market, as their technology capacity falls short of entering the more promising monitor market.
However, six major Taiwanese companies are increasing their research and production of monitor LCDs, challenging market-leading Korean firms.
Experts warn the weak prices will continue through next year.
Korean LCD firms say the trend is part of a 2-year boom and bust cycle typical to the industry and will not necessarily hurt, since it will help to broaden the market for LCDs.
Price has been the key hurdle to the wider adoption of LCD applications. As the price gap between LCDs and conventional display devices narrows, LCDs will be installed in more equipment, they expect.
Local LCD makers are working hard to reduce production costs, diversifying product lineups and exploring higher value-added markets like screen panels for mobile phones, and handheld computers.
By Hwang Jang-jin Staff reporter |
