By Tim Alper
Contributing Writer
As computer chips suffer tumbling prices, Korea has been dragged into a continent-wide blame game. The makers of semiconductors ― products used in mobile phones, memory cards and PCs ― are starting to turn on each other amid the gloomy economic climate.
Hynix and other Korean computer chip manufacturers have slashed their capital expenditure by 10 percent, claiming that Taiwanese semiconductor producers are to blame for falling prices. Other Asian countries are hitting back, though, saying that Korean firms are at fault.
Korea's overseas sales in PCs, mobile phones and digital cameras lag behind local Asian rivals, like the Japanese and the Chinese. However, there is one area of IT where Korean industries do have a stronger foothold than most of their neighbors ― semiconductors.
Semiconductors are one of the best-selling exports from this country. And Korean electronics giants Samsung and Hynix are two of the biggest semiconductor exporters in the world.
Computer chips, mobile phone components and parts of a huge variety of digital devices are made up of semiconductor materials. This includes both those that are used for memory (like RAM) and for non-memory or central processing units (CPUs).
These chips might look fairly dull ― little black squares of plastic circuitry, but without those tiny black boxes, none of today's modern gadgets would function.
McClean Research reports that Samsung is still the biggest semiconductor company on the planet in terms of sales and capital expenditure, and Hynix is third.
Most experts believe that the single main reason for Korea's dominance in the semiconductor market is the dynamic random access memory (DRAM) chip.
Without getting too technical about it, DRAM chips are a simpler alternative to the more traditional static RAM (SRAM) memory chip, which uses more components to store data.
American electronics company Intel first developed the DRAM in the early 1970s, but the Japanese first started to invest heavily in the new chip. In the 1980s, Japanese semiconductor manufacturers dominated global sales; in the mid 1980s, 80 percent of the market was Japan's.
However, Hayato Yoshioka of the Tokyo Institute of Technology believes the Japanese market suffered a sudden dip in sales because their DRAM chips were being produced for mainframes, rather than for home computers.
While advances in PC technology meant mainframes became less popular, the personal computer market started to boom. Yoshioka says Korea quickly specialized its manufacturing, mass-producing small, low-priced DRAMs made specifically for PCs.
Japan is still a semiconductor superpower. But while their DRAM sales dropped off in the 1980s, with no sign of recovery, Korea's have rocketted since then, and have never looked back. As things stand, Korea has had just under 50 percent of the DRAM market share in this decade.
Recently released statistics make worrying reading for Korea, though, and semiconductor companies here might have to change their outlook if they want to stay on top. Demand for chips has changed suddenly. Many companies are reporting poor sales figures for DRAM chips in 2007.
Samsung Electronics has made some ominous noises about the future of the DRAM industry, with senior figures forecasting losses for all memory chip manufactures. The company said that the average prices of DRAM chips could fall by about 15 percent in the latter part of this year.
And Samsung's share prices have fallen 15 percent since early 2006 with many analysts citing the falling DRAM prices as a reason for the sudden dip.
However, Hynix officials have been quoted as saying that Taiwanese semiconductor producers are not helping matters by flooding the market with memory chips, sparking a war of words between makers in Korea and those elsewhere in Asia.
Fank Huang, chairman of Taiwanese chip manufacturer Powerchip Semiconductor Corporation, has hit back at Hynix. Huang accused the Korean company of looking for No. 1, saying Hynix is attemping to flood the market itself by increasing their annual bit growth by 120 percent. That is compared to an average of 70 to 80 percent among Taiwanese manufactures.
However, there is a strong wave of opinion that suggests that all this bickering about who is to blame is immaterial. Experts claim that the future for the semiconductor industry does not lie with DRAM, but with non-memory chips. Hynix have recently announced they will attempt to re-enter the non-memory market after selling off its operations in that field in 2004
Kim Jun-yeon is a former engineer at Hynix. He was part of the Yield Enlargement Team in Seoul, and thinks that Korea is naturally better disposed to making cost-effective DRAM computer chips than non-memory products.
"Korean manufacturers are excellent at making memory products because we have cheaper labor costs than the U.S. or Japan. Korean technology is also specialized. It is suitable for making small memory products, things which have been in high demand until recently, but times are changing fast, and the non-memory market is growing at the expense of DRAM," says Kim.
Lee Myung-jong is marketing manager for the Korean division of Taiwan Technology, Hong Kong-based semiconductor distributors. Lee believes that while consistent spending on research and development has ensured that Korea has kept up with the pace of the Americans and the Japanese, companies now need to look for CPU solutions.
Lee says, "Samsung and Hynix are good examples of what it takes to make a successful semiconductor business; they have continued to spend big money on developing better products to stay at the top of the international pile. But the time has come to start looking to non-memory chip solutions, as the market is changing fast."
Former Hynix man Kim explains that while Asian countries with cheaper labor costs start to work hard on memory chips, Korea may be about to lose its competitive DRAM edge to other East Asian competitors.
Kim says, "Korean companies have traditionally focused on making memory chips, but China and Taiwan are slowly starting to take that market over. We have to follow the U.S. and Japanese lead. We need to try to put money into developing non-memory chips."