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The R Word

Taylor made -- by Roy Taylor

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What do you call an industry losing billions of dollars a year that keeps making more of the same products to worsen its debts? Stupid? Well, yes, we could certainly say that about the DRAM business -- but how about another term, unregulated. A report in this week’s Electronics Weekly here in the UK, has stated that LG Semicon and Hyundai’s combined debts total more than $11.4bn, a simply staggering sum. Debts for other manufacturers may not be quite so enormous, but none the less are big. In the interests of fairness I should state that Vanguard will lose millions too, this year. The political and human costs of these losses are mounting. Already we have seen that the British Government has been caught between publicly trying to support Korea and private anger over the closure of the Siemens DRAM plant (blamed on the Koreans by the boss of Siemens) in Tyneside. Human costs? Try insecurity, stress, stress related illness, redundancy, pay cuts and worse. This year more than 20 people I personally know have left the DRAM industry for one reason or another. We suspect more will still leave. Just imagine what would happen if the price of a new Ford Saloon fell from £15,000 (the average UK price) to £1,500 in 18 months. Or the value of the FTSE100 fell by the same percentage. Can you imagine Ford building more cars? Or the Stock Exchange allowing more stock to keep being sold? No, I cannot imagine this either. But why? The reason is the R word. Regulation. Most other, older industries have at some time or another faced a crisis like the one affecting the DRAM business. When natural market forces have not been able to take effect (or not allowed to happen) it has been because industry leaders have sought or had imposed upon them different forms of regulation, formal or otherwise. At the end of July, we saw DRAM pricing rise strongly. It stayed up for three weeks. It is now falling and although it is unlikely to return to its old low, the increases are unlikely to return except for some proprietary devices. There is one simple reason for this. There just is not enough demand to support all of the DRAM still being manufactured. The increase was a strong and concerted effort by the manufacturers, working together, to see price hikes take place. But it was doomed to failure when the consumption figures did not exist to take the product available. Never mind that it was Korean manufactured product that was first offered at a discount in Hong Kong – the fall was inevitable. The time has now come when if the world’s DRAM producers cannot regulate themselves they must become regulated – or leave the industry. For the sake of the millions of people whose lives depend on this industry, and for the sake of the future of the industry (which needs profits to fund research and development) we now need regulation. The world does not need a DRAM mountain, no matter how keen some manufacturers are to produce one. ® Roy Taylor is joint managing director of Vanguard

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