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  • Korean Chipmakers Seek to Reverse DRAM Price Decline
  • 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.
    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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    Updated: Tue Jun 9 14:27:10 1998