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Politics : Formerly About Applied Materials -- Ignore unavailable to you. Want to Upgrade?

To: Jacob Snyder who wrote (20939)	6/27/1998 9:44:00 PM
From: Justa Werkenstiff	Respond to of 70976

All: Samsung now to cut back production for one week per month for indefinite period but admits to needing help to firm up prices from others: June 29, 1998, TechWeb News Samsung sticks with cutback plan By Jack Robertson Kiheung, South Korea- Samsung Semiconductor president Yoon-Woo Lee says he means business when vowing to cut DRAM production sharply for the rest of the year. As the world's largest DRAM supplier, Samsung "wants to take a leadership role in cutting back to end the terrible price-cutting oversupply," which is killing profits, he said. In an interview in his office here, Lee said Samsung will keep its production of 64-Mbit DRAMs at 8 million units a month, and that the company has slashed 16-Mbit production 66% from a year ago, to 6 million chips a month. Samsung has the capacity to produce 12 million 64-Mbit devices a month, but the company is "holding back until the market improves," Lee said. The chip maker will shut down DRAM fabs one week a month for "an indefinite period," Lee said, adding that he hopes other Korean and Japanese DRAM makers will follow Samsung's lead and close down lines regularly until the supply of memory chips becomes balanced with demand. Facing the unrelenting glut in DRAM chips due to continuing die shrinks and some new capacity coming on line, "the industry must cut back production to end the oversupply," Lee maintained. Lee also conceded that Samsung's DRAM cutback strategy might be defeated by contrarian Micron Technology Inc. "They will go their own way," he observed. Micron last year doubled its DRAM unit production to grab increased sales when South Korean suppliers made a first abortive attempt to raise prices by cutting back output. What happens if other DRAM rivals don't go along in holding down their chip production? "We will be patient for the time being to see how the market reacts. But we will look again at our strategy in a couple of months, and may reconsider if the rest of the industry hasn't joined us in this effort," he said. Lee claimed Samsung is willing to live with the downside of production cutbacks. He acknowledged that tapering off DRAM sales will affect exports, which bring in urgently needed foreign cash. He also agreed that shutting down fabs for up to a week each month would cut chip revenue needed to pay back high depreciation costs on capital equipment. If the world's No. 1 DRAM supplier sticks to its policy, Samsung's monthly DRAM unit production will nearly be matched by several rivals. Hyundai is projecting 64-Mbit DRAM output of 7 million units monthly, and its current 15-million-unit-per-month output of 16-Mbit devices is more than double that of Samsung. NEC is now producing 6 million 64-Mbit chips and 8 million 16-Mbit DRAMs per month. Lee doesn't want Samsung's DRAM cutback to endanger the company's leadership position in the market, where it holds an 18 percent share. He conceded that in order to maintain that share, Samsung needs other DRAM suppliers to join in holding back their production as well. Samsung is also cutting its capital-equipment spending this year by 50%, to less than $1 billion. However, Lee said the lower investment won't have a negative impact "because we nearly completed upgrading and expanding fabs as part of last year's $1.5 billion capital expenditure." Two fabs in the company's Kiheung complex were largely upgraded to 0.25-micron processes last year, and this year's capital spending is sufficient to complete the installation, he said. Samsung's new fab in Austin, Texas, was completed under last year's budget, although Lee said a Phase 2 expansion of the facility is on hold due to a lack of additional financing. Samsung is also in no rush to build a next-generation 300-mm-wafer fab. Lee said a pilot line will be completed in the fourth quarter of this year at its Kiheung development fab. But plans to expand into 300-mm production "depend on market conditions and the availability of a complete tool set." Lee believes Samsung will continue to be the largest SRAM supplier in the world, with a 20% global share. SRAM prices "have stabilized from the very low levels of a year ago," and better margins have helped offset slightly the profit-battering of DRAMs, he said. The South Korean chip executive also believes the SRAM market is benefiting from the U.S. anti-dumping decision against Taiwan suppliers. "They have cut back, and that has reduced supply on the global market," he said. Samsung is currently producing 4-Mbit synchronous SRAMs, and next year will sample 8-Mbit and 16-Mbit devices. And the company is continuing to push its system-on-a-chip capability as a higher-margin avenue to escape the DRAM price wars. As reported last fall, Samsung is building a single-chip graphics controller for Intel Corp.'s Chips and Technologies subsidiary, as well as for Trident Microsystems Inc. Lee said his company is negotiating with other potential customers, which he wouldn't name. Samsung is developing a single multimedia chip with MPEG-2 audio and video capability, but Lee wouldn't forecast when samples would be available. Lee again declined to comment on long-persistent rumors in South Korea about any Intel investment in Samsung Semiconductor or its parent, Samsung Electronics Co. Ltd. He said there was nothing to report about a cooperative effort with Intel to design and develop chips tailored to the consumer-electronics market. Lee said he couldn't forecast semiconductor group revenue for 1998, but said the sales total will be lower than a year ago because of the drastic drop in DRAM prices. "I think we will see a turnaround next year."