SK hynix, the world's second-biggest manufacturer of computer memory chips, is considering signing a cross-licensing deal on memory chip patents with Micron Technology of the United States, sources told The Korea Times, Monday.
"There is consensus inside the Korean firm for a need for comprehensive licensing with the U.S. firm," said one official in a local semiconductor industry that maintains businesses with SK hynix and Samsung Electronics, declining to elaborate further.
The move comes after Micron, which is the world's No. 3 supplier of conventional computer memory chips, is shifting its focus toward profitable mobile DRAM applications amid rising demand for smartphones and tablets.
"After the acquisition of Japan's Elpida Memory, Micron intends to strengthen its presence in chips which are profitable. Since the global memory chip industry is facing a new paradigm which no longer guarantees returns for aggressive investment, the U.S. firm needs to source DRAM chips from Korean chipmakers while investing more for profitable businesses. This could be a win-win deal," said the official.
Micron already struck a licensing deal with market leader Samsung Electronics. The two companies are sharing patents in conventional DRAMs.
Samsung ranked top in the DRAM market with a 32.7 percent stake in the DRAM market in June, followed by SK hynix with 30 percent, according to data from DRAMeXchange.
Another industry source claimed that it's no surprise that SK hynix and Micron are seeking a cross-licensing deal because it will most likely save costs and avoid legal disputes given that the chip industry has entered a new phase, focusing on value creation and not price competition.
SK hynix and Samsung Electronics have recently signed a cross-licensing deal to cover all patents that each holds on semiconductors.
They also struck a separate licensing deal with Rambus, and have decided to drop all patent disputes over chip technology.
"Because only a few players have survived from the ‘game of chicken' over the past few years, there is no reason that those that survived are in cutthroat competition over prices. The possible deal with Micron will be helpful for all and does match up well with the ongoing trend," said the source.
The move by these major players to see cross-licensing deals with rivals came as the semiconductor industry is undergoing this paradigm shift thanks to consolidation and increasing entry barrier, mounting technological uncertainty and falling demand elasticity.
"The excesses of the past also teach a powerful lesson on how not to do things. Bit growth, the industry's long-term benefit and curse, is slowing permanently as scaling becomes more difficult," said Sanford C. Bernstein in its latest note to clients.
"Slowing supply combines with robust demand to create strong pricing and an increasing-margin environment. Smartphones, tablets and solid state drives (SSDs) are key demand drivers for DRAM and NAND in the next five years."
Sources said if SK hynix strikes a licensing deal with Micron Technology, then SK will put more focus on sharpening is application technologies and it also can raise its share in NAND flashes and mobile DRAMs, which are weaker than its conventionally-strong DRAM profile.
They agreed that the "big names" in the industry will act very rationally and the industry is entering an unprecedented time, with prolonged high margins and low volatility that should continue for years.
Those views are echoed by Samsung Electronics, according to sources at the company.
They said it seems highly unlikely that Samsung's semiconductor business will see huge ups and downs in profit even in the third quarter of this year as Samsung still believes that the industry is still being controlled by the so-called "voluntary monitoring system" after the end of the cash-burning race.
"There won't be high volatility in the market and the trend will be continuing for a while," the source added.