Local Chipmakers Beat Rivals in DRAM Market
Japan, Taiwan Players Spill Red Ink in Second Quarter
By Kim Yoo-chul
Staff Reporter
In the global `staring competition’ of the dynamic random access memory (DRAM) market, leading players are making every effort not to blink. But it seems too late for some considering the `terribly disappointing outcome’ in the second quarter.
Attention had widely been focused on whether chipmakers narrowed losses or even posted a profit during the quarter ending June as the global market for DRAM, mainly used in traditional PCs, was still suffering from a supply and demand imbalance due to a continued supply glut in the industry.
Hit by falling chip prices and rising inventories, chip manufacturers have begun to cut their capital expenditure, hoping the measures eventually lower supply.
The contract prices of some DRAM chips have risen about 30 percent this year. However, that is well short of making up for huge losses in 2007, when some chip prices plunged more than 90 percent, according to industry estimates.
But South Korea’s Samsung Electronics and Hynix Semiconductor, the world’s No. 1 and No. 2 DRAM makers, respectively, were winners in the quarter, adding to their market shares at the expense of troubled rivals such as Taiwan’s Powerchip and Qimonda of Germany.
"Samsung Electronics will hit the jackpot with an expanded market share if struggling chipmakers eventually exit the industry," says Kim Soo-kyoum, semiconductor director at researcher IDC.
"We forecast our market share to increase by one or two percentage points each year from the mid-30s toward the high 30s in coming years," Hong Wan-hoon, Samsung’s vice president at its semiconductor unit said in a conference call with analysts on the occasion of the second quarter earnings meeting.
The operating margin in Samsung’s chip unit increased to 6 percent from 4 percent in the first quarter thanks to a rather stable contract price on its chips.
Hynix also trimmed losses in the quarter due to a slight rebound in the price of DRAM chips and increased shipments.
Operating losses during the April-June period were 172 billion won or about $160 million on a consolidated basis ― an accounting standard which includes its overseas operation ― down from losses of 482 billion won in the previous quarter. The operating losses margin also decreased to 9 percent from 30 percent over the same period.
The average selling price of Hynix’s DRAM chips rose 9 percent from the preceding quarter, while quarterly shipments rose 12 percent.
"Thanks to spending cutbacks by most chip suppliers other than Samsung, the global DRAM market bottomed in the second quarter and I expect few top-tier suppliers to turn a profit this year," Kim Nam-hyung, an analyst at a market research firm iSuppli said.
Still in Red Alert to Japan, Taiwan Firms
Unlike the Korean duo, fourth-ranked DRAM chipmaker, Japan’s Elpida Memory, is widely expected to post third straight quarterly losses with DRAM prices declining below manufacturing cost. The company is to announce earnings, Thursday.
Toshiba, the world’s No. 2 NAND chipmaker, suffered a 11.6 billion yen net loss during the April-June period, a direct impact of the downward trend in the industry.
The No. 3 DRAM maker Qimonda owned by Germany’s Infineon, slightly narrowed operating losses in the quarter. But sales fell to 384 million euros mainly because of a 45 percent decline in the average selling price of the company’s chip products compared with the prior-year quarter.
In order to increase productivity and cut costs, Qimonda has been in talks with its Taiwanese partner Nanya Technology about the future of their manufacturing joint venture Inotera and technology partnership in light of Nanya’s decision to partner with Micron Technology on technology licensing.
Powerchip and Nanya, Taiwan’s two biggest DRAM makers, continued losses in the fifth straight quarter with falling PC chip prices.
"The increasing financial losses of those companies have clobbered stock prices and losses continue to mount," a Samsung official says.
Since last July, Qimonda has lost more than 85 percent of its market value, and Micron is down more than 61 percent during the same period. Both Powerchip and Nanya have fallen 59 percent.
Recovery in Second Half?
Outlook is mixed in the second half. Some analysts expect the global chip market to turnaround in the second half as the market is in a recovery mode helped by spending cutbacks by some manufacturers and increasing PC demand on the approaching back-to-school season.
But it is highly unlikely any quick turnaround will come soon, given high fuel costs, a slowing global economy, and weakening consumer spending on new PCs.
"It will be difficult for the global chip industry to see any meaningful improvement in the second half because of slowing demand, coming from the global economic slowdown," Chu Woo-sik, head of Samsung’s investor relations team said during a media briefing on its second quarter earnings.
"The overall chip industry is experiencing a slight recovery, however, the pace is much slower than the market had expected," according to John Park, an analyst at Daishin Securities.
Analysts also say Apple’s 3G iPhone has contributed little to increase the NAND flash chip memory market, which has also been suffering from oversupply.
Officials at Samsung, the world’s No. 1 NAND flash memory chip producer, are doubting a strong demand for NAND chips which are used in MP3 players and digital cameras and they don’t expect market conditions to improve significantly in the remaining year.
"We expect the average price of DRAM chips to fall 40 percent in this year, and NAND flash memory chip prices to decline by 50 percent," Hynix spokeswoman Park Seong-ae said.
In line with such expectations, DRAMeXchange, Asia’s biggest on-line trading site forecast the demand for NAND flash-equipped products will remain weak, and except USB disks which are capable of sustaining a mild delivery growth, the deliveries of cell phones, digital camera, MP3 and PMP were all in a downtrend.
"Despite the approaching high season, the seasonal impact may be not as strong as has been expected as the MP3 and PMP market is entering saturated capitalizing on emerging markets," it said, adding recession is even clearer in those markets.