Elpida Merger to Threaten Samsung
By Kim Yoo-chul
Staff Reporter
Samsung Electronics ― the world's No. 1 memory chip maker ― could face a major challenge in maintaining its leading position, following confirmation by Japan's Elpida Memory of merger talks with struggling Taiwanese chipmakers Powerchip, Rexchip Electronics and ProMOS Technologies.
According to analysts and industry watchers, Elpida will be able to form a "new axis" by joining forces with Taiwanese makers, correcting the current excessive price competition in the global chip industry, spelling possible trouble for Samsung.
"The merger will make a rival for Samsung. Elpida, with economies of scale, would be in a position to make good offers and lure Samsung customers," a high-ranking Samsung executive told The Korea Times, Monday.
An Elpida-Taiwanese merger would be the biggest reorganization in the $30 billion computer memory chip industry since 1999, when Elpida and Hynix Semiconductor emerged as the result of the Asian financial crisis.
"Such an alliance would create a force strong enough to challenge Samsung Electronics," said Seo Won-seok, an analyst at NH Securities.
Seo, however, added that the threat to Samsung will not come immediately due to the length of time required for the merger to reach a critical point, but suggested that Samsung should take it seriously and prepare for it.
The talk of a merger reached fever pitch as Elpida chipmaker CEO Yukio Sakamoto was quoted as saying by Bloomberg news agency that his company was talking with Powerchip, Rexchip and ProMOS.
Samsung took up 30.1 percent of the global computer chip market at the end of the third quarter, while Elpida and the three Taiwanese companies accounted for 24 percent of global DRAM revenue, according to market research firms iSuppli and DRAMeXchange.
"More difficult is the position of Hynix, the world's No. 2 memory chipmaker. The merger will force Hynix into a corner with its survival at stake, especially considering its existing partnership with ProMOS," said analyst Seo.
Hynix spokesman Park Hyun downplayed the scenario, adding Hynix will make every effort to continue the bilateral alliance.
Brokerages forecast Samsung's chip division will post between 500 billion won and 800 billion won in operating losses during the fourth quarter, with the outlook for the first quarter of the next year just as bleak.
Samsung is now planning to cut chip output, following in the footsteps of other major players such as Hynix and United Microelectronics.
The reduction could be as high as 10 percent, starting in March 2009 with a goal of maximizing efficiency and reducing costs throughout the shutdown of its unprofitable 8-inch wafer lines.
In Taiwan, the government is seriously considering giving massive financial support to its chipmakers, while Germany decided to offer the collapsing Qimonda $206 million in support.
"One country starts considering a bailout, and it often leads to a chain reaction," said research firm Gartner.
"Nobody wants to see their industry being lost to another country."