Taiwanese and Korean Memory Capacity

An interesting article appeared in the Korean Times this week that expressed concern over the continuing investments of Taiwanese memory manufacturers. As stated in the article, “While South Korean chip giants such as Samsung Electronics and Hynix Semiconductor have recently clashed over the issue of a ``technology transfer’’ to overseas rivals, Taiwan-based computer chipmakers are forming a united front to inject massive amounts of cash into new next-generation plants…Experts say their ongoing ``consolidation’’ moves will accelerate further as Taiwanese manufacturers, South Korea’s biggest competitors in memory chips, seek to sharpen their technology competitiveness…The South Korean government needs to draw a new blueprint for IT policies to help boost the competitiveness of local chipmakers,’’ the Samsung Economic Research Institute said in a report.”

The article continues, ``Even though DRAM prices plunge, the Taiwanese firms expect demand to remain steady. That’s why they decided to invest,’’ the source added. Experts say Taiwanese chipmakers have gained cost competitiveness by utilizing low-cost manufacturing bases, vertical integration and mass production systems.”

In light of recent tax initiatives granted to Qimonda, as well as a recent European initiative to combine all the European semiconductor companies under a single organization, it’s not difficult to understand why other companies are also hoping for some relief from the low profit margins and the ever-declining memory prices.

However, there may be more to this particular story than posturing for government assistance. As the 1G DRAM tumbles down in price while a major consumer of NAND confirms that their growth in nonvolatile memory will not be as strong as last year, we slip toward oversupply in both of those technologies. we are once again testing the resolve of all companies participating in both DRAM and NAND memory production. Of all the various suppliers in both technologies, Korean and Taiwanese companies have added the highest percentage of new capacity. Accusations have been tossed about by companies from both geographic areas that too much memory capacity is coming on line from their competitors.

What is at stake is the prize of being in high volume production during a potential shortage of capacity in 2009. Capex reductions in 2008 and the hope that at least one supplier will decide to exit memory production is motivation enough to keep everyone moving forward according to their original plan.

One positive outcome that would benefit all the suppliers would be if lower NAND prices triggered a surge of demand—most likely for solid state drives—and Samsung recently announced new higher density products in this area.

Unfortunately, our outlook is for a very long and challenging summer for the memory suppliers. We expect to hear more discussions of regional consolidated strategies and requests for financial relief before there is any substantial change in the supply and demand conditions.