Hynix Semiconductor Inc, the third-largest computer-memory chipmaker, may cut production in an effort to boost the price of chips that now sell for less than they cost to make.
"As the situation is bad we could consider [cutting production]," said Kang In-young, a spokeswoman for Hynix. "We understand other companies are also considering cuts."
Hynix, which relies on computer-memory chips for 71 percent of sales, is expected to lose 508 billion won (US$392 million) this year as the price of its main product languishes. Hynix has sold or spun off its telecommunications, computer monitor and flat-panel display businesses to concentrate on chips.
Samsung Electronics Co and Micron Technology Inc, Hynix's rivals in the memory-chip business, say they have no plans to cut production even as computer makers slash orders for components as they try to use up extra inventory and adjust to weaker demand.
The slump has raised speculation memory-chip makers may regulate supply to create shortages and boost prices.
"Every time they have done it, it has worked quite nicely: three months later we saw a sharp increase in prices," said Chon Chong-hwa, an electronics analyst at Salomon Smith Barney in Seoul.
Still, "shutting down production has a bad psychological impact on the company even though it's good for the industry. No one wants to be the first to announce a cut."
South Korean memory-chip makers, which account for about 40 percent of the US$30-billion-a-year industry, last cut production in 1998, shutting their plants for two weeks. Memory chip prices rebounded as supply of the devices, which are sold in the millions per month, fell short of demand.
The spot price of the PC100 64-megabit dynamic random access memory chip fell to less than a dollar last week, down from nearly US$9 a year ago.
Memory-chip sales are expected to drop by more than 40 percent this year, according to a recent forecast by market researcher IDC. Hynix and Micron, the second-largest memory-chip maker, have already reported losses this year.
"It may be the only hope right now," said Jay Tsai, a spokesman for Vanguard International Semiconductor Corp (
"In an upturn everyone can make money, in a flat period only the leading players, and in a downturn no one can."
Production cuts, to be effective, would require the main producers of memory chips to act together or risk losing market share to a competitor, analysts say. If they do act in concert they may find themselves the target of price-fixing allegations. A consensus so far may be difficult to find.
"We have heard rumors about other manufacturers but Micron continues to operate at full power with no plan to reduce capacity," said Sean Mahoney, a spokesman for Micron, in an e-mail reply to questions. Micron said last week it will reduce spending on manufacturing improvements by 44 percent in fiscal 2002 as it awaits a rebound in demand.
Samsung, which plans to spend more on new facilities than its two largest rivals combined, may also be refusing to cooperate, judging it has more to gain from putting more pressure on rivals.
In the first three months of 2001, the company earned 1.2 trillion won (US$912 million), beating analysts' estimates, Samsung has switched production to alternative designs for new chips which competitors are not yet making in large numbers.