DRAM pricing investigation in Japan targets Hynix, Samsung
By Paul Kallender
EE Times
(10/24/01 11:01 a.m. EST)
TOKYO — In an historic reversal that symbolizes Japan's weakened semiconductor industry, four Japanese DRAM makers have launched an "investigation" into DRAM pricing that could lead to anti-dumping legislation aimed at South Korea's Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc.
The Japanese suppliers — NEC Corp., Toshiba Corp., Hitachi Ltd. and Mitsubishi Electric Corp. — confirmed their move Wednesday (Oct. 24).
Insiders see the action as a trial balloon to help stem the recent flooding of the DRAM market by the two companies, which together produce about 40 percent of the world's DRAMs. But since those companies' exposure to the Japanese market is relatively small, an ulterior motive may be to sink Hynix, whose financial position grows ever more precarious, observers said. The move is also seen as part of international initiatives based in the United States and Europe to pressure the Republic of Korea to revise its semiconductor trade policies.
"The decline of DRAM prices is a cause for concern at Mitsubishi Electric," Koichi Nagasawa, semiconductor group president and executive vice president of Mitsubishi, said of the investigation, which is just officially being launched.
"To ameliorate the situation we are currently examining all possible measures, including legal ones," he said.
Officials at the three other Japanese companies similarly stressed that the four companies were only investigating possible legislation, but had yet to approach the Japanese government. Hitachi officials refused to comment but confirmed that the company was one of four involved in the investigation, which it hasn't participated in to date. Even so, Hitachi is already looking into the next legal steps, a Hitachi spokesman said.
Toshiba is contributing to the investigation, which is in "a very preliminary stage and does not specify particular companies or countries," a spokesman said.
"Our target is all companies that are selling DRAM at very unreasonably cheap prices," he said.
"Korea is not the main target. It's not a Japan-Korea thing, it's also the Taiwanese and the Americans," said an NEC spokesman.
Major grievances
An NEC source, however, said that Japanese companies have two major grievances about their Korean competitors. First, they believe that Samsung and Hynix have been particularly guilty of flooding the memory market, especially over the last quarter. Second, NEC has become incensed that Hynix — staggering under heavy debt and teetering on the brink of financial collapse for years — has not been allowed to go bankrupt. NEC has greater exposure to the DRAM market than any other Japanese supplier, through its Elpida Memory Inc. joint venture.
"NEC has been looking into this for a while," said the source. "We think Samsung and Hynix are possibly the main perpetrators. And the government support of Hynix has been raising quite a few concerns," he said.
The investigation comes at a crisis point for the global DRAM industry. Projected to shrink 45 percent this year to $12 billion, the market is suffering a chronic 5 percent oversupply compared to demand, and there's little evidence of a near-term uptick in orders. Meanwhile, spot prices at some memory densities have fallen to less than half of manufacturing costs, leaving every DRAM player awash in red ink. Despite multiple bailouts arranged for Hynix, analysts generally agree that the company will run out cash in about two quarters.
Production weight
Micron Technology, Infineon Technologies, Samsung and Hynix have all been boosting DRAM production, which has deflated prices, analysts said. Samsung ramped production as much as 25 percent over the third quarter, from about 240 million to 320 million 64-Mbit equivalent units, according to Soo Kyoum Kim, a memory analyst with International Data Corp. in Seoul, South Korea. Samsung has also been unloading a huge surplus 256-Mbit parts through "aggressive" pricing, he said. Hynix, which has often been accused of flooding the market to maintain a cash flow during this difficult year, also ramped production last month, Kim said.
In addition, one analyst has accused Samsung of swamping the market with 128-Mbit chips priced at $1.00 apiece, or slightly less than half the cheapest estimated production cost.
In an initial reaction, Hynix officials in Korea suggesting it would be unfair to target Korean companies when Micron and Infineon as well as Samsung and Hynix have all recently raised production, further depressing prices.
"First of all, this is not dumping . . . and this is not fair," a Hynix spokeswoman said.
"It is not just Korean companies selling product below production prices. Micron and Infineon are also doing it, as are all the Taiwanese," she said.
Because Japanese companies have yet to formally contact either Hynix or Samsung over the issue, the Hynix spokeswoman said it was too early for the company to begin to talk about countermeasures.
Meanwhile, Samsung took a more conciliatory line and protested its innocence. "There is some misunderstanding by Japanese companies," a Samsung spokesman said.
"This is not a serious matter and we can easily resolve this through communication. We are a high value electronics company and we have focused on Rambus and DDR and graphics memory, high-end products at higher prices. We don't see any reason to accuse us of dumping . . . and dumping is the last policy we would ever adopt," the spokesman said.
Pointing fingers
Hynix is not to blame for the current depressed prices, but Samsung clearly is, Farhad Tabrizi, vice president of worldwide memory marketing at Hynix, told EE Times.
"In the first half of 2000, Samsung was producing 160,000 eight-inch wafer equivalents per month. In the first half of 2001, they raised this to 220,000. In the first half of next year they will raise this to 250,000. They have single-handedly created the oversupply. Samsung has added more than 30 percent capacity. Clearly we can say that Samsung is to blame for the crisis," Tabrizi said.
In contrast, Hynix is reducing its capacity from 250,000 to 180,000 eight-inch wafer equivalents by the first half of 2002, Tabrizi said.
"We are removing older capacity and we have been very responsive," he said.
One ulterior motive for the Japanese move could be to try to kill off Hynix, said IDC's Kim. "My guess is that the real target could be Hynix," he said. "They are regarded as a big problem by the rest of industry." Kim said the Korean government clearly wants Hynix to survive.
After posting a $1.2 billion third-quarter loss, Hynix hopes to raise about $750 million by selling two fabrication facilities capable of 0.35-micron and greater process technologies to Shougang Steel, China's third largest steelmaker, according to Sun Chung, vice president of Merrill Lynch & Co.'s semiconductor research group. Chung estimated that Hynix has about "one to one-and-a-half quarters left" unless it can find more cash.
A Hynix collapse could remove about 18-to-20 percent of the world's DRAM capacity, but that will not happen, Tabrizi asserted. Hynix is selling the two fabs to guarantee it has cash to invest in 0.13-micron process technology next year, he said.
"We are not going to go away, we are here to stay," he said.
Japan's move should be seen in the light of increasing international pressure against Korea, said a highly placed Japanese source connected with the investigation.
According to documents passed to EE Times, Japanese companies feel their move is in line with separate actions against Hynix by both Microsoft Corp. and the European semiconductor industry. Microsoft is moving to launch a dumping action against the Republic of Korea for its efforts to stabilize prices and production costs, and claims that the government's moves to bail out Hynix via a consortium of state-run banks is unfair, the source said. The U.S. government and European companies are informally applying pressure to the Korean government, and undisclosed European companies are lobbying the European Commission and the World Trade Organization to restrict Korean semiconductor products, the source said.
Behind the scenes, Japanese companies are considering five forms of legal sanction, said the official, and are looking into FTC Notification 15 (unfair trade practices) Section 6; Customs Tariff Law Article 8 (anti-dumping duties); plus Article 6 (retaliatory duties), Article 7 (countervailing duties) and Article 9 (emergency duties).
Future at stake
But Japanese companies are being deliberately vague about their next moves because of historical problems between Japan and the rest of Asia, the source said. And the real motive of the effort is to introduce some stability into the semiconductor industry, the source added.
"This is very sensitive," he said.
"The Japanese companies have not filed any request to METI [Japan's Ministry of Economy, Trade and Industry], they have not submitted anything yet.," he said. "If it were an American or a European company, they would not hesitate to call it dumping. But Japan has historical issues with Korea and Taiwan, so Japan is more hesitant to directly accuse Korea of dumping. Elpida has taken the biggest damage from this presumed dumping and you know they are ramping, but even if they start full production they can't go ahead if a 128-Mbit chip is priced at a dollar."
The official called the move a "trail balloon" and said it was intended to protect the Japanese semiconductor industry's future ability to compete. The position of Japanese suppliers in the DRAM market has fallen to less than 20 percent over the last five years, but this year's depressed prices have spilled over into other areas, causing losses and jeopardizing companies' ability to invest in logic and LSI platform technologies seen as cornerstones of their future survival, the source suggested.
"This is affecting flash and logic. Unless the price of LSIs are normalized, all the players in the semiconductor market will go to hell, so the four companies are considering to take legal action, but they have not decided whether they should bring this to anti-dumping legislation yet," the source said.
"It's quite a symbolic move," said Yoshiharu Izumi, executive director and senior analyst, equity research, at UBS Warburg (Japan) Ltd.
"In 1985 Micron sued Japan, and now Japan is threatening the Koreans. But in the U.S. case, U.S. companies were able to reform their industries and stage a comeback in the global industry by moving away from the DRAM business. In Japan, industry has yet to find a strategy," he said.
Izumi said that Elpida Memory, which is jointly owned by NEC and Hitachi, was the primary force behind the move. Since its establishment at the beginning of this year, Elpida has publicly pinned its strategy on high-end products, only to see the miserable performance of its parent companies force a delay of up to a year for its 300-mm wafer fab, seen as vital to its viability.
Shigeyuki Umezawa, deputy director of METI's Information and Communication Electronics Division, said the Japanese government is not involved in the investigation at this stage. Government officials haven't received any request from industry about legislation, he said. If a government investigation is applied for, his department would help coordinate it with the Ministry of Finance, he said.
"The investigation by industry is only in the preliminary stages and we have received no information about whether or not it will lead to a request for the government to take action," he said. "We can't comment on the outcome. But if they decide to proceed, then they will ask the Ministry of Finance to launch its own investigation."
While anti-dumping legislation in the international sphere can take years to roll through, UBS Warburg's Izumi said it was possible the Japanese government could fast-track domestic legislation.
"The Japanese are not the culprits, but I am a little bit surprised by Japanese aggressiveness," said Scott Foster, senior vice president of technology research at Lehman Brothers Japan. "But considering they have been cutting and shuttering and the Koreans have been consistently selling below cost and Hynix has been receiving support that is very difficult to justify, actually it would seem natural for them to do this," he said. |
