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| Korean Chipmakers Seek to Reverse DRAM Price Decline
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June 10, 1998 (SEOUL) -- Korean microchip producers, which make
about 40 percent of the world's DRAM (dynamic random access memory)
chips, have begun to take action to reverse the sharp decline in
prices.
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However, analysts say that the impact of the reduction in Korean
memory chip output will be limited to temporary psychological
relief.
Samsung Electronics Co., Ltd. the world's largest DRAM maker,
announced on June 8 a shut-down of its domestic production lines in
the period of June 14 through June 20. The seven-day suspension
will affect all of its memory chip and most non-memory activities,
and will be its largest production cut since the market slowdown
began in 1996.
The company's move will translate into a more than 25 percent cut in
its DRAM output. "This is expected to have a strong psychological
effect on the market and help turn prices around," a company
official said.
Analysts assert that the impact will be short-lived, in the light of
the huge glut in the global DRAM industry.
"It may give a psychological boost to prices, but the move is likely
to provide only temporary relief," said Jeon Byung-soo, a
microelectronics analyst at Daewoo Securities Co.
Concern is growing that the scaling-down of Korean operations could
give rivals in the United States and Taiwan an opportunity to
increase their market shares.
Operating conditions for DRAM makers have gone from bad to worse in
recent months. DRAM spot prices have declined dramatically so far
this year. The average export price of Korean DRAM devices has
fallen 48.6 percent in the first quarter from the year before,
according to the ministry.
Samsung's announcement followed a similar move by Hyundai
Electronics Industries Co., Ltd. to shut down its domestic DRAM
fabrication lines for a one-week period in early June, with a goal
of slashing its DRAM supply by about 10 percent. LG Semicon Co.,
Ltd. is expected to follow suit as well.
The concerted effort by the Korean trio, which is unprecedented, is
seen as the beginning of a shift in their strategies from
domination of the commodity DRAM market to diversification into
high value-added segments, such as microprocessors and non-memory
multimedia devices.
The Korean government also is eager to see them move away from
excessive competition in the volatile DRAM market, which is now
seen as one of the reasons for the country's financial crisis.
Park Tae-young, minister of commerce, industry and energy, urged
microchip executives on May 28 to coordinate their export
strategies to avert another meltdown in the world DRAM market.
"The revitalization of the semiconductor industry holds the key to
overcoming the crisis," Park said, noting that microchip exports
account for 13 percent of all Korean exports.
At a meeting called by the Korea Semiconductor Industry Association,
the chip producers agreed to shift their investment toward non
-memory sectors.
In its recent forecasts, the Semiconductor Industry Association (SIA
) projected that worldwide chip sales would decline 1.8 percent to
US$134.6 billion in 1998.
Korean DRAM producers have even more worries. They have lost
considerable clout in global financing due to the nation's
financial crisis. Also, the yen's steep decline against the dollar
is adding to pressure on their profit margins.
The Korean firms have fewer options left. Non-memory businesses
could be one lasting hope for them. Hyundai, for example, plans to
restructure its semiconductor product line-up toward non-memory
technologies such as MPEG (moving picture experts group) chips, an
industry standard for digital video and audio compression, and to
CMOS (complementary metal oxide semiconductor), a manufacturing
process used to shrink electronic circuitry to smaller dimensions.
Hyundai said it is aiming to generate annual sales of US$200 million
in non-memory operations by 2000, doubling from some US$100 million
in such sales projected for 1999.
(James Lim, Asia BizTech Correspondent)
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