Samsung Electronics Co Ltd has fallen into line with other memory chip manufacturers including Hyundai Electronics Industries Co (CI No 3,425) and is to halt production at its Korean fabs next week in an attempt to shore up falling prices. It expects DRAM inventory to be slashed by 25% as a result of the seven day stoppage at its local fabs. Samsung will also suspend production of SRAMs, flash memory as well as non-memory chips. The net effect of the companies’ combined actions will lead to a 12.2% reduction in supply of parts this month. The Koreans hope prices will be driven up by year-end but whether their latest attempt is successful depends to a large extent whether their Japanese counterparts follow suit. Press reports say Japan’s major chip makers – which account for 30% of the world’s semiconductor production – see no need to cut output again and are even thought to be considering an increase in production. If this happens the Korean companies’ actions may be in vain. Although computers ship with increasing amounts of memory DRAM, prices are still declining rapidly as a result of over supply. Industry analysts say 16Mb DRAMs now cost around $1.30 compared with $4 four months ago. Sales of DRAMs are expected to pick up again in 1999 but not before a further decline of 26.6% to $14.5bn this year following a 21.2% decline in 1997. The three year glut will be followed by a rise of 26.7% next year, 35.4% in 2000 and 35% in 2001, according to the Semiconductor Industry Association, as vendors reduce output or close operations. The $13bn electronics arm of Samsung Group is the world’s largest memory chip maker with a 19% share. Samsung’s $1.3bn Austin, Texas plant is still ramping up to meet its target of producing 64Mbit chips next year. It currently employs 1,000 and is spending a further $450m in a second phase of tooling up. Whether planned second and third factories go ahead as originally planned remains to be seen. As well as plummeting memory prices, Korean chaebols – family conglomerates including Samsung, many of which operate chip-making businesses – are under increasing pressure from the Korean government to reorganize following the Asian financial crisis and the conditions imposed by institutions which are bailing those countries out. Foreign companies, including US giants such as Intel, Microsoft HP and are touted to be lining up investments in the chaebols’ IT businesses, a topic surely underpinning South Korean president Kim Dae Jung’s visit to Silicon Valley this week.
