DRAM makers prepare for life under Micron
More squeeze or higher prices?
Their relief stems from the possibility that the new company might use its 40% share of the market to temper supply and keep prices high, but they also fear that the superior economics to scale available to the new company will sharpen an already competitive market climate.
"If the deal does go all the way through, we expect the formidable pricing power of the resulting entity will keep DRAM prices high [spurring other Asian chipmakers to step up output]," Deutsche Securities analyst Fumiaki Sato wrote in a research note on Tuesday.
Shares of all five Taiwan-based DRAM makers, as well as world number-two DRAM maker, Samsung Electronics, have all strengthened this week in the immediate aftermath of the Hynix announcement. Certainly, the present market condition is good for all of them. The 128Mb DRAM spot is now about $3.30, up from lows of less than $1 six months ago, but down from $10 just 18 months ago, while cost is about $3.
During last year's downturn, the DRAM market shrank by two-thirds to about $11bn, compared to a 33% decline in the overall chip market to $152bn, according to market research firm Gartner Dataquest, cited by Reuters.
However, while market conditions might be easier, Micron's soon to be much smaller rivals are aware that they might have to make deals of their own to remain in the game, and tentative talks have been going on between them since the end of last year when Micron's pursuit of Hynix first became known. Although initially Micron may be preoccupied with restructuring around its acquisition, it may not be long before it begins to punch its enlarged weight. In particular, the company is likely to be able to pour more funds into R&D, possibly opening a gap in its mastery of the all-important chip process technology which is vital to realizing a decent margin in the cut-throat DRAM commodity game.
Germany's Infineon Technologies, the world's third biggest memory chip maker with some 10% of the market, failed to cement a tie-up with Japan's Toshiba Corp earlier this year. However, it already has a joint venture with Taiwan's Mosel, and technology for a capacity-swap deal with another Taiwan company, Winbond Electronics. A third Taiwan company, Nanya Technologies, is also said to be talking to Infineon about the possible joint construction of two new fabs.
Mosel, Winbond, Nanya and a gaggle of other smaller Taiwan companies between them control some 20% of the DRAM market, making them insubstantial partners on an individual basis, but potentially a more viable united force. They are also being courted by Japanese companies such as Toshiba, and Elpida, the DRAM joint-venture of NEC and Hitachi, which is said to be the world's number-four memory maker.
The only major memory chip player apparently remaining aloof from the current round of cooperation talks is Samsung, which with 25% of the market, is still the current world leader. Analysts believe Samsung's sang froid stems from its ongoing strategy of diversifying its memory chip business with a sharper focus on comparatively premium products such as SRAM and Flash. It may be that in the medium-term, Samsung is content to let Micron expand its DRAM position, and to wait instead for the next dip in this volatile business to make a move of its own.
© ComputerWire. All rights reserved.