Gus, thanks for the response about the chaebols. I have a few additional questions.
How vulnerable is China? I read that their banks are carrying 22% in bad loans and foreign investment has dried up. I know that their currency is somewhat insulated from attack, but are they vulnerable in other ways?
Also, I noticed Taiwan and Singapore were not on the list. Is the current opinion that they are in good shape relative to the rest of Asia? I thought that Taiwan was doing well, because they were waving 10-figure checks around at the last APEC meeting, saying to Malaysia, play nice with us, take the cash, and we can all ignore Beijing. I don't think anyone took the money, but I wonder what the Chinese government thought of this.
Also, what's your take on Japan? The Nikkei has been getting hit this past week, but I heard that the Japanese government is going to be making an announcement tomorrow.
TIA
BTW, here is an article on DRAM pricing and earnings of some Japanese corporations. It has some mention of Fujitsu, but does not give any numbers on them, however the article implies that they are in better shape than the others. This is not the greatest article, there is no mention of the S. Korea crisis. This is the link techweb.com, the article follows:
Is There Life After DRAM Crash For Japan's
Chip Makers?
(12/08/97; 11:00 a.m. EST)
By Jack Robertson, Semiconductor Business News
Japanese chip makers have only one question these
days: They want to know if there is life after the market
crash in DRAMs.
Most of them were hit hard by the dive in DRAM
prices during the past year. The outlook is made even
grimmer by a sluggish home market for such
chip-consuming products as PCs and consumer
electronics and industry overcapacity due to the growth
of competitors, such as the South Koreans and
Taiwanese. On top of all that, the Japanese are falling
behind in the capital investment race.
With memory prices still showing no signs of reversing
course, it seems like nearly all the Japanese chip
companies want to diversify out of DRAMs. But such a
major switch is far easier said than done. First,
expanding the output of logic chips will take a massive
commitment in R&D and production equipment.
Even if the Japanese do spend the "Big Yen," it isn't at
all clear that the resulting new chips -- systems on chips
with embedded DRAM, microprocessors, multimedia
devices, and single-chip wireless ICs, among others
-- can reach high enough volume to even begin to take
up the slack caused by falling DRAM prices. DRAMs
are now being turned out by the tens of millions a month
at most Japanese vendors.
Japanese chip giants already are investing large sums of
money on R&D and equipment. Each one of them
spends an average of about $1 billion annually.
But they aren't keeping up with the rest of the world.
Clark Fuhs, principal analyst for semiconductor
equipment at Dataquest, in San Jose, Calif., said their
South Korean, Taiwan, and U.S. competitors are all
spending more now on capital spending.
And as Japan chip makers fall farther behind in capital
investment, they continue to lose global market share,
said Susan Billat, industry analyst for Robertson
Stephens & Co.
The outlook for Japan doesn't look good. Hitachi is
cutting its chip capital investment plan for the fiscal
year ending March 31, 1998, to 140 billion yen ($1.1
billion), down 7 percent from a year ago. Fujitsu's
semiconductor capital spending this fiscal year is
expected to decline 6.5 percent to 180 billion yen ($1.45
billion).
The picture at Mitsubishi is even worse. It is cutting
chip capital investment nearly 9 percent to 105 billion
yen ($850 million). NEC and Toshiba are both trying to
maintain last year's spending levels. NEC is budgeting
190 billion yen ($1.5 billion) for semiconductor capital
investment, while Toshiba said it expects to spend 170
billion yen ($1.36 billion).
Hurting Japanese chip makers even more than lower
capital spending, however, is the stop-and-start nature
of their spending, maintained a top executive at one chip
equipment supplier. When the DRAM market crashes,
as it did early this year, the Japanese IC suppliers put a
freeze on most capital spending allocations, he said.
They have now resumed equipment buying, mainly for
technology upgrades of their fabs. But this spring's
sudden capital spending moratorium may have forced
Japanese fabs into a "catch-up mode," the equipment
executive said.
Japan is well aware of the capital spending gap. Seiichi
Aratani, president of Oki Microelectronics, bemoaned
the fact that his South Korean rivals often seem to have
a "blank check" ability to invest massively in new fabs
and equipment. "The Koreans just want to kill other
companies," he added.
But it doesn't end with the Koreans. "Taiwan IC
companies are also investing very aggressively, said
Oki's Aratani, "and [they] will become a major threat."
"We look with envy on them," one top Japanese chip
executive said.
Many a Japanese chip chieftain finds himself in a real
dilemma now. "Japanese electronic companies are very
large conglomerates, and when DRAMs were making
lots of money in 1994-95, that covered lower earnings
of other divisions in many companies," said Tsuyoshi
Kawanishi, principal consultant for Toshiba and former
senior executive vice president of the electronic
conglomerate.
As a result, "executives of these other divisions then
were very happy to approve large capital spending by
the semiconductor division," Kawanishi said. "But now
that DRAMs are in such poor financial straits, the other
division executives don't want to go along with a larger
capital spending budget for their semiconductor group."
The nosedive in DRAM prices is already hurting the
giant Japanese electronics companies. Down more than
60 percent in the past nine months, DRAM prices are
blamed by most Japanese companies for a drop in total
net profits forecast for their consolidated operations for
the fiscal year ending March 31, 1998. None of these
companies report semiconductor division profits
separately, but U.S. financial analysts said they believe
the majority of Japanese chip operations are losing
money now.
Even NEC, which already has one of the most diverse
semiconductor product lines among the Japanese
companies, said it expects net income to drop 13
percent this year to 80 billion yen ($650 million).
Mitsubishi Electric is forecasting a 10 billion yen ($80
million loss), Toshiba is looking for a drop in net profit of
6 percent to about 63 billion yen ($500 million), and
Hitachi is predicting a pretax operating profit drop of 11
percent to 75 billion yen ($600 million).
Fujitsu, so far, has managed to escape much of the red
ink, thanks largely to having a greater percentage of its
semiconductor business in telecommunications devices
where prices and margins have held up better due to
growing markets. But despite all their efforts and
spending to diversify, most if not all the Japanese
DRAM vendors are going to have to stick it out with
the price-bludgeoned memory devices no matter how
bad the market turns.
"Once a billion dollar DRAM fab is turned on, a
company must continue to turn out as many chips as
possible, no matter what the price, to pay back the very
high depreciation cost," said A.A. LaFountain III, an
analyst with Dominick & Dominick, in New York.
Other analysts said the memory makers are stuck with
their margin-squeezed storage chips until alternative
parts can ramp up to volumes comparable to DRAMs.
And that could take awhile.
One way Japanese chip makers are trying to cope with
the flow of red ink from their DRAM operations is to
shift as much DRAM production as possible offshore,
making more alliances with Taiwan foundries. Their
new partners usually are lower cost producers and can
help by sharing the high capital costs.
Mitsubishi's Semiconductor Group is typical. Its joint
venture with PowerChip Semiconductor in Taiwan is
already turning out nearly half of the company's
16-megabit DRAMs, and will start up production of
64-megabit devices for the Japanese company in the
first half of 1998. In 1999, the Taiwan joint venture
expects to be producing nearly half of Mitsubishi's
64-megabit DRAMs.
About 40 percent of Fujitsu's DRAM output comes
from Taiwan Semiconductor Manufacturing Co. Hitachi
is already getting DRAMs from a joint venture with
Texas Instruments, called Twinstar Semiconductor in
Richardson, Texas, and it is building another fab in
Singapore that is jointly owned with Nippon Steel Co.
The Japanese are also jumping belatedly into the
DRAM shrink race to cut their costs. They were
shocked earlier this year by Micron Technology, when
the Boise, Idaho, company roared past them this year in
DRAM volumes and earnings by shrinking its DRAM
die size by shifting to 0.35-micron production lines, thus
doubling the number of chips from a wafer.
But the Japanese will have to play catch up. Micron
said it expects to get another 50 percent increase in the
number of DRAM die on a single wafer when it goes to
a 0.3-micron process by the end of this year.
Most of the Japanese chip makers had slowed their
push to quarter-micron processing and were working on
the new technology only for the next-generation
64-megabit lines. This meant many of their mainstay
16-megabit fabs were running on 0.5-micron lines that
were highly vulnerable to the shrink efforts at Micron
and other competitors. But now Japanese vendors are
rushing to catch up by using newer processes and even
quarter-micron lines to turn out lower cost 16-megabit
DRAMs.
Japan's domestic market hasn't helped chip makers
either. The pump-priming strategy by "Japan Inc." for
the home market was judged to be a failure for chip
makers. The consumer electronics market driver is
stalled now.
And the market that Japanese IC makers were really
counting on this year -- domestic PCs -- went into a
tailspin in May. "The PC market in Japan dropped
sharply" said Kazunari Shirai, president of Fujitsu's LSI
Manufacturing Group. "This caused a sudden decline in
domestic demand for DRAMs and other PC
components." |
