Semiconductor Chicken
The global memory semiconductor market, which has been restructured into an oligopoly through two games of chicken, might break down. Samsung Electronics, currently going through difficulties in the smartphone business, might attempt to improve profitability by appropriating its market dominating power as in the past.
If Samsung Electronics starts cutthroat competition, a major upheaval is inevitable in the memory semiconductor market, which is currently under an oligopoly. In the memory market, only four companies – Samsung Electronics, Toshiba, SK Hynix, and Micron – make NAND Flash memory.
According to the related industries on August 18, Samsung Electronics’ operating profit portion of the global memory semiconductor industry was 55.1 percent last year, a 38.1 percent point drop from 98.2 in 2012.
The fact that Samsung Electronics’ market share decreased so much shows that the profitability of other competitors has improved. For the last few years, the memory semiconductor market has been restructured to be supplier-oriented, as some companies fell behind the competition or were acquired by other companies due to oversupply. Accordingly, product prices have stabilized, and major memory manufacturers have scored big operating profits.
The problem is that the games of chicken started all over again once Samsung Electronics’ portion of the total operating profits in memory semiconductor industry dropped. In 2006, the first time, Samsung Electronics recorded 56.1 percent market share. When the fierce competition happened again in 2010, Samsung Electronics’ portion was 59.9 percent.
Samsung Electronics is likely to pull the chicken game card again, especially as a change in process refinement, a major technological innovation in memory semiconductor manufacturing, is expected. Samsung Electronics released 3D NAND Flash last year, and announced its mass production of 20 nm 4GB DDR3 this year.
In the semiconductor industry, product prices can easily drop due to oversupply when a market leading company starts mass production through technology development. By the decisions of pioneering companies, second movers are easily left behind.
An industry professional said, “Process refinement is not limited to performance improvement through new products, but to cost minimization in all products in existing lines as well as production maximization. This could greatly enhance cost competitiveness.”
Market followers, of course, are trying to come up with various strategies to avoid being helplessly hurt in these market wars, which can happen any time. First of all, they are dispersing their risks by diversifying products and clients. They are also securing sufficient cash through financial restructuring in order to survive through times of cutthroat competition.
Sk Hynix is expanding businesses with Chinese set companies based on mobile D-RAM. Toshiba and Micron are leading the Solid State Drive (SSD) market. These companies are very good at creating cash flow by managing their product portfolios.