Feet on his desk, chin on his chest, Chang Song-hwan is startled awake by a customer entering his computer-memory chip store.
"No one is buying" even though prices have fallen, said the 40-year-old owner of Dong Sin Semiconductor, a cubicle in the basement of a building in Seoul's Youngsan electronics market. "This is the worst slump ever. I'm ready to give up."
Chang's plight is mirrored by makers of the chips such as Hynix Semiconductor Inc and Winbond Electronics Corp who are suffering not only faltering demand but competitors who are trying to force them out of the industry.
Putting on the pressure
Take Samsung Electronics Co and Micron Technologies Inc for example. The two chipmakers are maintaining industry-wide production at a level which is forcing makers to sell chips for less than they cost. That has raised suspicions the two are intent on forcing smaller rivals from the US$30 billion industry and expanding their market share, which already stands at 40 percent.
"A couple of months ago, when there was talk about global supply reduction, Micron and Samsung were the only ones that didn't want to participate," said Keon Han, an analyst at Bear Stearns in Hong Kong. "They wanted to put the pressure on and it is now beginning to work."
Hynix, the second-largest maker, is trying to find buyers for its facilities as it waits for a decision from creditors on whether they will provide it with a second bailout in less than four months. Taiwanese makers are talking about how they might merge or form partnerships to weather a slump they expect to continue well into next year.
Sales of DRAM chips, which provide the main memory for personal computers, are forecast by International Data Corporation to fall 40 percent this year. Spot prices for the chips have been below the estimated cost of production since May.
Shunning production cuts
The DRAM market has always been cyclical. This time around, the trough may prove deeper as makers refuse to use the traditional solution: production cuts. Samsung and Micron both bemoan the lack of demand and give little sign of scaling back.
"Until some consolidation takes place it will continue to be difficult," said Sean Mahoney, a spokesman for Micron. Asked what role his company will play, he adds: "we have no plans to reduce production capacity in any of our plants worldwide."
Similarly, Samsung Electronics Spokesman James Chung says "all companies are just trying to survive right now" and then adds that "we expect to increase our market share when the next rebound comes along." And far from reining in, both companies continue with upgrades and research advances that will make their facilities more productive.
Samsung said it will begin upgrading production to 0.12 micron technology this year. Reducing the gap between lines in the circuits allows makers to squeeze more chips from a piece of silicon, increasing production capacity and cutting costs. Micron will also open a test line using 0.11 and 0.10 technology this year, much narrower than the 0.15 or larger technology used by most manufacturers.
Tough times for taiwan
While Hynix is the highest profile DRAM maker to hit trouble this year, Taiwanese manufacturers, who inherited technology mostly from Japanese companies who have already exited the industry, are also concerned about their ability to continue alone.
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