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Korean memory makers could lose market share grip, says iSuppli |
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May 29, 2007 at 12:12 PM |
 Derek Lidow, president and chief executive officer of the market research firm iSuppli Corp., has warned that both Hynix and Samsung are in threat of losing their unit production lead in DRAM to foreign rivals within the next three years.
"South Korean companies are adding DRAM manufacturing capacity, but this is contributing significantly to the collapse in pricing for the memory this year," Lidow said. "These price declines will cause South Korean manufacturers to reduce DRAM output growth next year. Meanwhile, Taiwanese/Chinese suppliers will increase their output, and may surpass the South Korean manufacturers in DRAM manufacturing capacity by 2010."
The threat may not be that obvious at first glance. According to iSuppli, Korean companies will account for 47 percent of total DRAM unit production in 2007. Taiwanese and Chinese manufacturers will control 31 percent, while other regions will control 22 percent in 2007, iSuppli projects.
However, this gap will begin to close in 2008, as Taiwanese/Chinese manufacturers increase their DRAM unit output to equate to a 35 percent market share. In contrast to this, Korea's share will begin to decline, to reach 46 percent, even though capacity is being added.
Global DRAM revenues are expected to rise to $45.7 billion in 2010, up 35 percent from $33.9 billion in 2006, according to iSuppli. NAND flash revenue will increase to $21.5 billion in 2010, up 74 percent from $12.4 billion in 2006. Lidow believes that alliances forged over recent years by rivals outside Korea will start to impact the ability of Hynix and Samsung to compete effectively, especially in a market experiencing significant price erosions due to over-capacity.
This is compounded by the number of other memory chip manufacturers able to focus on DRAM from a capital-intensive perspective, often in partnerships to share the costs. This is something both major Korean companies are unable to do, according to Lidow.
"The challenge is faced by Korea as a strategic manufacturing location, because there are many more Taiwanese and Chinese companies that can invest in such capital-intensive industries than there are Korean memory suppliers," Lidow said. "Korea's manufacturing and investment base is highly concentrated and this makes it very challenging for the nation to maintain long-term leadership in capital-intensive areas, in spite of its superior technology and operational excellence."
It is not all doom and gloom for the Korean companies, according to Lidow. A key counter-balance to the price declines and double-digit negative DRAM Operating Profit Margins (OPM) is his view that NAND flash had reached a bottom in pricing in the first quarter of this year and should become more profitable than DRAM once again as the year goes on.
"The South Korean DRAM suppliers will shift capacity away from DRAM and toward NAND, which is expected to be more profitable over time," Lidow said.
NAND flash revenue will increase to $21.5 billion by 2010, up 74 percent from $12.4 billion in 2006, iSuppli forecasts.
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