Its M&A Time in Global Chip Industry
Pessimism, Dumping Are Cited as Causes for Oversupply, Price Collapse
By Kim Yoo-chul
Staff Reporter
It's an M& A time in the chip industry worldwide. Samsung Electronics is negotiating for the purchase of Sandisk, a U.S. flash memory-card company, while Micron is looking to acquire Qimonda.
The reasons why this consolidation is gaining momentum are manifold ranging from price collapses from the forecast of a downturn after the Beijing Olympics to leading chipmakers production that has created a glut on the market.
With these unfavorable factors, prices of DDR2 1Gb dynamic random access memory (DRAM) chips have nose dived over 28 percent in a month to record lows, according to market research firms.
In line with the gloomy future of the market, many institutional investors have issued bearish forecasts and slashed investment ratings on DRAM and even profitable NAND stocks.
The current oversupply began in 2007. A drown-out market downturn hits smaller, pure-play DRAM makers hardest, and the position of smaller chipmakers is particularly limiting.
Analysts say it is "crucial" for some chipmakers to either close their chip lines or to push their products by taking sliding profits.
As a last card to survive in such a gloomy situation, Samsung Electronics has been in possible merger talks with the world's biggest flash card memory manufacturer SanDisk, while the world's No. 3 DRAM maker Micron Technology is seriously considering buying German-based Qimonda.
Meanwhile, the world's No. 2 Hynix Semiconductor finalized its acquisition of an 8.6 percent stake in its Taiwan-based strategic partner, ProMOS Technology.
"Rock-bottom DRAM prices are cornering smaller DRAM makers," market research firm iSuppli said, forecasting the average DRAM contract price to decline by more than 10 percent from the current level by the end of the third quarter.
"Backed by spending cuts by followers such as Powerchip, Nanya and Inotera, the industry's average profit margin will be back to a break even point," Kim Nam-hyung, chief analyst for memory at iSuppli wrote in a report to clients.
Analysts say Samsung and Hynix are at least maintaining production in anticipation of the next upturn in DRAM prices, however, doing so could add to the length of the current downturn, which could be weighed down further by the currently decreasing demand for PCs and notebooks in the coming quarters.
Although it seems "natural" for smaller chipmakers to continuously cut their capacity, that measure leaves them vulnerable to market share losses whenever a recovery does happen _ especially with Samsung and Hynix keeping up the pressure, they add.
"Cash burns at some manufacturers are at an alarming rate," Glen Yeung, an analyst at Citigroup, wrote in a note.
Will Qimonda Change Global Map?
Industry watchers emphasized that the global DRAM industry had gone through eight major business cycles since the 1990s, narrowing down the major players in the field to eight. The on-going downturn, they said, will spur regrouping.
Financial Times Deutschland of Germany recently reported that Qimonda's parent company, Infineon Technologies, was planning to sell its ownership of the DRAM-making subsidiary when the market was weak.
Leading DRAM makers including Micron Technology and Elpida are potential buyers, industry watchers say.
"The global map of DRAM manufacturing will likely change once Qimonda is sold," a Samsung Electronics executive told The Korea Times.
"If Micron acquires Qimonda by forming an alliance with Nanya and Inotera, it will pose a serious challenge to Samsung and Hynix," he said. Taiwan's Nanya has just entered into cooperation with Micron on next-generation DRAM technology after a partnership with Qimonda ended and the two companies are organizing a new venture.
"Well, I don't think any of the DRAM makers will shut down their business in the near future. But they are faced with a transition period," the Samsung executive said.