Memory sticks in Infineon pricing craw

As Hynix hangs on

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ComputerWire: IT Industry Intelligence

The returning gloom over the DRAM sector deepened yesterday as Infineon AG chief executive Ulrich Schumacher warned that contract prices will fall if there is no imminent upturn in IT spending. Schumacher said contract prices for 128MB DRAM parts are still higher than $4, but spot prices have already been pushed down to $2.

Last week Korean media sources speculated that both Samsung Electronics, the world's biggest DRAM maker, the Hynix Semiconductor Inc, the heavily indebted world number-three DRAM maker, have both been forced to cut 128MB contract prices by between 16% and 20% to under $4. Infineon, which sells higher end products than Hynix appears not to be under quite the same price pressure, however, and there is no doubt that the Korean company is taking its toll on both Samsung and Infineon.

Late on Wednesday, Schumacher told analysts that he believes the pressure on DRAM prices will be short-lived, and will not develop into the disastrous downward spiral that caused huge losses in the memory chip sector last year, and nearly bankrupted Hynix. Schumacher admitted that Hynix's continued survival following the collapse of its merger talks with Micron Technology Inc is also a major factor in the memory sector's poor health. "Everywhere where Hynix is, prices are under pressure" he said.

Schumacher and his counterparts at Samsung, Micron and NEC must all now be hoping that Hynix's days are numbered. Directors of the Korean company said last week that they are confident of signing a memorandum of understanding with a prospective buyer by the middle of next month. It is difficult to guess who this might be, since Micron stated yesterday that it definitely has no interest in reopening talks. Schumacher also said that Infineon is seeking no further partnerships with DRAM makers, having already cemented alliances with three Taiwanese companies: Mosel Vitelic, ProMOS Technologies, and Winbond Electronics.

Some observers believe there is still an outside possibility that Samsung might bid for all or part of Hynix, possibly due to pressure from the Korean government, which has publicly washed its hands of Hynix, but privately must also be concerned at the political repercussions of letting one of Korea's biggest electronics companies go to the wall.

A more likely scenario is that a new DRAM world order will come into being before the end of this year, comprising a top four of Samsung, Micron, Infineon and Elpida, the NEC and Hitachi. Having witnessed Hynix's inability to negotiate realistically with a potential savior, the best plan appears to be to hold out until Hynix runs out of time, and returns the DRAM sector to a more sustainable balance between supply and demand.

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