Is Samsung happy about high chip prices?
Biggest memory chipmaker hopes to corner overseas rivals
By Kim Yoo-chul
GIHEUNG/HWASEONG, Gyeonggi Province ― Being a top-tier player is crucial in the global memory chip industry because an advanced position equals more bargaining power in the sector.
Samsung Electronics is the current leader controlling over 40 percent of global demand, which helps it accelerate its moves toward finer technologies.
The leading position also enables Samsung to secure its bottom line even in a market downturn as it can create revenue by offering highly-efficient and cost-competitive products to its bigger clients such as Apple.
Analysts say this year will be favorable for the company as economic recovery will probably spur consumer spending on electronic devices, which will lower inventories and tighten supply, keeping chip prices strong.
But it seems Samsung is not entirely happy about such a favorable market situation; what it wants is faster consolidation in the industry by letting chip prices continue to remain weak.
“Chip prices are rising. That is good for Samsung. But I’ve heard that it first wants chip prices to go down further as structural realignments bring more profits to top-tier players,’’ a Samsung official said, Sunday, asking not to be identified.
People familiar with the situation told The Korea Times that it is aiming take over 50 percent of global chip demand as the company regards the percentage as the ”right psychological level’’ to keep its business in the black regardless of market conditions.
“That will be realized when the overall industry sees a faster and drastic consolidation. Price is the key,’’ said the official.
A Samsung spokesman declined to comment citing the sensitivity of the issue.
History has taught that technology alone doesn’t induce people to buy devices with a newer generation of memory chip; it is price parity that prompts consumer change.
Prices for memory chips that include DRAMs and NANDs have been rebounding in the past few weeks thanks to the steadily growing demand for high-end devices such as smartphones, and a better global economic outlook.
In the chip industry, demand almost always rises; however, prices typically fall when supply is plentiful _ a situation that occurs about every three to five years once companies build too many manufacturing plants.
DRAMeXchange, a market research firm, said the industry’s benchmark DDR3 1Gb chip was sold for $1.20 as of the end of last week, an increase of 20 percent from weeks earlier.
“That’s a negative for Samsung. If the benchmark chip price stays over $1.00 _ the break-even point _ over the next few quarters, then overseas competitors will see profit recovery, which is not a scenario Samsung wants,” said an industry source.
Such mixed feelings were also echoed by a top company executive. Semiconductor head Kwon Oh-hyun recently told reporters that the actual rebound for DRAM chip prices will come from the second quarter, not from the first.
“Maybe, Kwon hopes the price rebound will be delayed because later is better,’’ added the source.
Samsung took 40.7 percent of the global DRAM market as of the end of the fourth quarter of last year, followed by Hynix with 21.9 percent; Japan’s Elpida with 13.6 percent; and Micron of the United States, 12 percent, DRAMeXchange said.
Taiwanese chipmakers including Nanya and ProMOS formed a second-tier group with their a combined share of some 10 percent.
It seems Samsung will have to wait longer for its wishes to be satisfied.
Micron sees the memory pricing trend as “very favorable’’ and its chief operating officer (COO) said it doesn’t see there being any significant supply/demand imbalance.
In the meantime, the Tokyo-based Elpida plans an IPO on the Taiwan Stock Exchange (TSE) to fund the development of advanced chip-making technologies. It acquired the sixth-biggest, Taiwan-based Powerchip amid its bullish market outlook for demand.
“What’s interesting is Samsung’s big investment plan in chips. Samsung plans to improve its bargaining power to better control the industry’s supply and chip prices before its Japanese and the U.S. rivals do,’’ said an analyst at a foreign brokerage based in Seoul.
Samsung plans to invest 10.3 trillion won including 6 trillion won for DRAMs and NAND flashes throughout this year.
Samsung is officially saying it is planning to widen the market gap with its competitors by churning out more advanced products ahead of them.
It is one of the leaders in cutting-edge chips produced using the finer 30-nanometer class technology, followed by its cross-town rival Hynix. Rivals have just begun applying 40-nanometers or are still using outdated 60-nanomter technology.
In chip-making, thinner technology means more productivity. For example, making chips using 30-nanomter level technology increases productivity by 50 percent over the 40-nanomter level.
“That will be time-consuming. But the one thing clear is that Samsung wants to use more money earned from its memory business to strengthen the less-volatile non-memory business to eventually catch up with the top semiconductor maker Intel,’’ the analyst said.
“Samsung is mulling over the possibility of providing its chips at below $1.00 each to pressure its rivals. We call it a ‘golden price strategy.’ It’s been expected that Samsung would keep this aggressive strategy throughout this year,’’ added the analyst.
Samsung had previously increased its global DRAM share to 30 percent over two years from 20 percent in 2000 by using this strategy, he said, adding that more shipments of advanced chips reflects the company’s aim of completely cutting down its rivals.