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A sense of crisis is growing in the international semiconductor market due to the global economic slowdown and plummeting prices of computer chips. Despite losses, global chipmakers have been aggressively boosting investment since last year aiming to decimate the competition.
¡ß Chicken game
The industry is haunted by disturbing signs. In the case of the DRAM industry, all manufacturers except Samsung Electronics posted losses. Manufacturers of NAND flash memory chips used in MP3 players and other portable devices, also with the exception of Samsung, posted losses in the second quarter. The price decline is serious. DRAM prices, which were in the US$6 range in January last year (spot prices of 512Mb DDR2 DRAM 667 Mhz chips), have recently fallen to 76 cents, which is about 1/10 of their original price. The U.S. Philadelphia Semiconductor Index dropped 4.23 percent last Wednesday. The cause was a drop in investor confidence in the industry.
The crisis is due in large part to a "chicken game" chipmakers have been engaged in despite a market slump. The global market goes through a boom and slump cycle; the term "chicken game" refers to a strategy of increasing output during the slump to boost market share and monopolizing on the profits when boom times return. But now almost all manufacturers embark on a chicken game, prices are plummeting and the market slump is getting deeper. According to World Semiconductor Trade Statistics, the DRAM market, which was scaled at $31.3 billion in 2006, is expected to shrink to $27.6 billion this year.
¡ß Alliances take shape
The global semiconductor industry is showing signs of a major realignment. The old monopolistic structure centering around the memory chip industry is showing signs of crumbling. As a case in point, second-ranked DRAM maker Hynix is seeking an alliance with fifth-ranked Qimonda of Germany. Hynix said last Wednesday it had partnered with other investors to acquire an 8.6 percent stake in Taiwanese DRAM manufacturer ProMOS (ranked eigth), having decided to go beyond a strategic alliance formed back in 2005 to embark on aggressive technology transfers and sharing of production facilities.
Talks with regard to the sale of Qimonda are picking up steam. According to Bloomberg, Qimonda's parent company Infineon is in talks with three companies and fourth-ranked Micron is said to be the strongest candidate.
¡ß Rebound next year?
Domestic manufacturers are on alert because it will be impossible for them to escape losses during boom times ahead if they fall behind in the rankings in sluggish times like this. Global semiconductor sales increased 0.5 percent month-on-month to $21.6 billion in June, showing small signs of a rebound.
The U.S. and European economies remain sluggish, but demand is rising in the Asia Pacific region. A Samsung Electronics official says it forecasts the global semiconductor market to bottom out in the second half of this year and rebound after mid-2009. He said Samsung is not considering cutting back on investments even though market conditions are tough but is preparing for the next market boom by maintaining its W7 trillion (US$1=W1,121) investment target this year, while considering the acquisition of memory card maker SanDisk.
Third and fourth-ranked manufacturers are also busy. Third-ranked Elpida is constructing a chip plant in China. Choi Seung-hoon, a researcher at LIG Investment and Securities, says manufacturers with large markets shares inevitably benefit when boom times return. He added that Elpida, Hynix and Micron will compete vigorously to take second place in terms of market share.
(englishnews@chosun.com )
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