Asian financial woes may lower DRAM tags
By James Carbone -- Purchasing, 3/26/1998
The financial crisis in Asia will likely mean that the semiconductor market will grow only 7% in 1998 and could trigger another round of dram price cutting, according to market researcher Dataquest.Earlier, Dataquest had forecast that the semiconductor market would grow 17% to $175 billion. But with the financial crisis in Asia, growth should only reach $160 billion because of a slowdown in worldwide electronic equipment production.
"In 1998, electronic equipment production will grow only about 3% instead of the 9% previously forecast, says Joe Grenier, vice president and director of Dataquest's Semiconductor Devices programs. Dataquest had predicted worldwide electronic equipment production would grow to over a trillion dollars, but has now revised that to $953 billion.
"Because of the decrease in electronic equipment production, the worldwide semiconductor market is likely to decline about $10 billion from our earlier forecast," says Grenier.
In addition, the semiconductor forecast could be further reduced by another $3 billion to $5 billion because of the potential lower cost of dram manufacturing in Korea and the devaluation of the won. Lower cost of manufacturing would result in lower market prices for drams. The equipment production slowdown and lower dram prices would result in the market growing 7% to $160 billion.
Throughout 1997, drams were priced at a level near their manufacturing cost, a minimum that must be followed if anti-dumping measures are to be avoided. But with lower costs, due to the devaluation of the won, Korean manufacturers such as Samsung, Hyundai, and LG Semicon could cut prices and not violate anti-dumping rules. As of mid-February there had been no drastic reduction in dram tags.
Of course, lower dram tags would be good news for buyers, but Korean chip makers may decide to improve profitability rather than build market share by keeping prices at their current levels or reducing them only marginally.
One thing is for sure: The buyer's market for drams will continue through at least mid-year, and prices will stay stable or fall.
However, the Korea Semiconductor Industry Association denies that the won's steep depreciation against the dollar since late 1997 had significantly improved the export competitiveness of South Korean chip makers.
The association says the devaluation of the won has increased costs of imported manufacturing equipment. Korea's financial costs have also risen since the country accepted an International-Monetary-Fund-led bailout.
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