Korean Big 3 in partial shift to 64M

Electronic News, Feb 3, 1997 by Andrew MacLellan

Mountain View, Calif--South Korea's big three DRAM makers are diverting a sizable portion of their 16-megabit capacity to the production of 64M chips, but vendors and market watchers are split as to whether the strategy will help meet a potentially huge demand or contribute to another period of oversupply.

The cutback by Samsung Electronics, LG Electronics and Hyundai Electronics Industries is expected to result in a 10 percent dip in worldwide 16M DRAM production, part of an ongoing effort to dry up a surplus of memory ICs which drove prices down by 80 percent in 1996. Word of the move already has lifted 16M spot prices about 20 percent, and in the near-term, industry veterans are hoping for improved margins on what is fondly remembered as a bread-and-butter technology.

"I think what we'll see is the spot market jump above contract pricing, that will hold, and as a result we'll see a gradual increase in contract pricing over the next couple of months," said George J. Robillard, VP of memory products for Fujitsu Microelectronics. "There is room for 16M to move without causing too much grief to the PC industry."

However, a spokesperson for Micron Technology cautioned: "We've seen these spikes before. I suspect we'll need to see more solid evidence that this will stick before people begin to change their contract pricing."

Last week, LG Semicon confirmed that it will roll back production of 16M EDO DRAM by as much 25 to 30 percent, diverting capacity to other architectures such as synchronous DRAM (SDRAM), Rambus DRAM (RDRAM) and to higher density 64M chips. The company will also ramp up production of the Mpact media processor which it and Toshiba are manufacturing for partner Chromatic Research.

"Prices have been down for some time now, and clearly a decision had to be made to streamline resources to get a better revenue stream, better profit margin and stabilize the oversupply situation," said Arun Kamat, LG's director of marketing.

Hyundai is scaling back 16M production by 20 to 30 percent and will turn its capacity to 64M EDO and SDRAM as well as SRAM, ASICs and other non-memory products. Farhad Tabrizi, director of strategic marketing for Hyundai Electronics America, said 1997 demand for 64M will far exceed the industry's manufacturing capability, which he estimates at 70 to 80 million units.

Samsung, the world's leading DRAM supplier, is also shuttling capacity to 64M in preparation for what it believes will be a 2H97 price-per-bit crossover with 16M devices. In fact, 64M production will comprise the majority of bits manufactured by the company at mid-year, according to Avo Kanadjian, Samsung Semiconductor's VP of memory marketing.

This latest diversification is reminiscent of last year's decision by Japanese DRAM vendors to widen their product base by ratcheting down memory production, but some observers have said encouraging 64M growth at the expense of 16M will only push the industry's DRAM oversupply up to the next rung of the ladder.

"It could be another blood bath," Jim McGregor, senior analyst for the In-Stat market research firm, said of the impending price parity. Mr. McGregor said much of the production which was scuttled during last year's 4- and 16M DRAM oversupply crisis was, in fact, placed in reserve for the manufacture of 64M chips and could result in early and intense pricing pressure.

"There is some concern that it could happen," said Dean McCarron, principal of Mercury Research of Tempe, Ariz. "I don't think there's an imminent danger, but I'm not convinced it won't."

Fujitsu's Mr. Robillard observed that the recent rise in 4M x 4-bit prices, which last week climbed from $6.50 to near $8, serves only to push 16M DRAM tags that much closer to 64M prices and may hasten the arrival of a price/bit crossover.

"Most of us who are capable of doing it want to move the market to 64M in an orderly but reasonably rapid fashion," he said. "Servers, workstations and laptops are screaming for it."

But others are left wondering if the market can absorb the combined capacity coming from Korea, Japan and elsewhere, including a family of 64M SDRAM chips which Texas Instruments introduced last week. Recalling a failed attempt by Korean manufacturers in the early '90s to force a migration from 4- to 16M DRAM, Micron said consumer demand will ultimately determine when the market will shift to 64M.