U.S.-based Micron Technology Inc., the third largest DRAM manufacturer in the world, laid off 70 workers at its Longmont plant in Colorado at the end of last month. With the layoffs, the company has started its restructuring plan to downsize its 2,400 employees, a 7.5 percent share of the total work force.
The tap between the rich and the poor is getting bigger in the global DRAM market. The current oligopoly state of top three leaders – Samsung Electronics, SK Hynix and Micron – gives an indication of change. Samsung Electronics, which leads the market, still makes trillions of won of operating profits despite unfavorable conditions in the DRAM market, while Micron, the third largest manufacturer, shows losses. In addition, two to three Chinese firms are seeking to push into the DRAM market and the structure of the DRAM industry seems to be changing.
DRAM manufacturers were poles apart on the business performance in the first half of this year. Samsung Electronics posted 5.27 trillion won (US$4.73 billion) in operating profit in the semiconductor sector. Although the price of DRAM products, which are its main products, kept decreasing until the second half of the year, Samsung continuously made profits. SK Hynix, the second biggest firm in the industry, had an operating profit of 1.02 trillion won (US$910.48 million), a third of that during the same period last year. However, it still recorded hundreds of billions of won in quarterly profit. On the other hand, Micron turned into a loss of US$32 million (35.62 billion won).
This is due to the difference in fine process technologies between companies. Samsung Electronics, which has the most advanced technology in fine process, is mass producing 18-nanometer (nm) DRAM chips. SK Hynix is mass producing DRAM products using its 21nm technology, whereas Micron has 20nm technology. The smaller the line width, the more dense circuits are, which leads to more production. The more advanced technology will lower production costs and improve profitability.
The semiconductor industry sources say, “As the price of DRAM products has continuously dropped, the soundness of each firm has been shown.” It means that Micron doesn’t have the competitiveness to make profits with the current DRAM prices.
The top three players – Samsung Electronics, SK Hynix and Micron – have monopolized the global DRAM market in the last three to four years with a combined 90 percent market share. All three firms had not much change in market shares and made trillions of won, enjoying prosperity. However, the current oligopoly structure can change as Micron is falling and Chinese firms are trying to enter the market.
China’s Hefei city government signed an agreement with Sino King Technology, a Japanese semiconductor chip design company, earlier this year to jointly establish DRAM chip plant in China with the investment of more than 8 trillion won (US$7.18 billion). Tsinghua Unigroup, China's state-owned semiconductor chip maker, tried to take over Micron but was turned down due to the opposition from the U.S. government last year. As Micron has kept posting losses and its stock prices have falling, there are rumors that Chinese firm will acquire Micron again. Market watchers think that the U.S. government will not be able to continuously prevent the lossmaker from voluntary market reorganization.
The board of directors of Micron, which felt a sense of crisis, approved the company’s poison pill plan at the end of last month. A poison pill is a tactic utilized by companies to prevent or discourage hostile takeovers, which allows existing shareholders to purchase additional shares at a discounted rate. Accordingly, some say that Micron seeks to block China’s acquisition attempts in advance.
Seoul National University Materials Engineering Professor Hwang Chul-sung said, “When Chinese firms aggressively tap into the market and rapidly increase DRAM production, not only Micron but also Samsung Electronics and SK Hynix can face difficulties.”