Oct 22, 2001 It could be a page out of Micron Technology Inc. chairman Steve Appleton's oft-repeated diatribe: Financially irresponsible DRAM suppliers are being subsidized by government interests, trashing competitive pricing structures and upsetting the market's delicate balance.
Only this time around, the protest is coming from Samsung Electronics Co. Ltd., which in years past has itself been the target of Micron's invective.
In an interview with EBN, Dieter Mackowiak, Samsung Semiconductor Inc.'s senior vice president in San Jose, discussed the substance of a position paper the company is releasing next week that aims to persuade OEM customers to see the industry's DRAM debacle in a different light.
EBN: Have the DRAM industry's losses created a survival-of-the-fittest contest where the market is too caught up with speculation as to who the next "victim" will be?
Mackowiak: It's precisely that - speculation. This has created immense confusion and uncertainty in the market. OEM customers are bewildered in dealing with DRAM producers. Irresponsible suppliers are selling at almost any price just to get orders.
Unfortunately, OEMs are tempted to ignore the stability and viability of these suppliers and take the lowest price offered. They should be developing long-term relationships with DRAM suppliers who will still be strong in the market many years down the road.
EBN: With every DRAM maker losing money, why have there not been more companies getting out of the business?
Mackowiak: These financially unsound suppliers have been put on life support by factions who have a great deal at stake in keeping them in operation. It's one thing to temporarily give financial bridge support for five or six months to help a company get back on its feet. But this has been going on too long. The industry now has a fundamental problem of irresponsible, continued support of DRAM companies that should not stay in business. But it seems no one wants to pull the plug.
EBN: Micron years ago filed a DRAM dumping case against Samsung and other Korean chip makers, charging that these same kinds of subsidies and irresponsible practices caused prices to fall below manufacturing costs.
Mackowiak: Samsung was cleared of all dumping charges then. We have also adopted corporate and financial management practices accepted in North America and Europe. After the 1997 Korean financial crisis, Samsung cut its workforce by a third. We slashed our debt-to-equity ratio from more than 200% to 20% today, at the levels of many U.S. semiconductor companies.
We get no subsidies from the government, other than some normal R&D support that is common everywhere in the world. We finance our heavy R&D and capital investments from our own funds or through responsible outside financing.
EBN: Let's be blunt: Micron and the U.S. government have warned the Korean government not to subsidize the bailout of Hynix Semiconductor Inc. But many observers claim that Hynix's huge amount of DRAM exports are critical to Korea's trade position and overall economy, and therefore the government can't afford to let Hynix fail.
Mackowiak: I can only comment on Samsung's position. We aren't seeking or getting any undue subsidies from any sources. We aren't playing the "Last Man Standing" game because Samsung assuredly will be a strong survivor.
EBN: There are a number of chip companies now discussing the merger of their DRAM operations into joint ventures. Will this help cut the oversupply and lead to a more rational market?
Mackowiak: I'm not sure the merger of two DRAM operations is the answer. One company just wants to pass on its problems, which become the problems of the new merger.
EBN: What is it going to take to get a more rational DRAM market?
Mackowiak: Nothing is going to change until some DRAM producer cashes out and leaves the market. As long as irresponsible companies have access to financial resources that are outside normal Western practices, the present price cutting will continue.
EBN: What was the root cause of the problem?
Mackowiak: The troubled DRAM companies have only themselves to blame. Two years ago everybody was making money and had good profits. But instead of using this money to invest in technology and upgrade fabs, these companies simply took all the profits for themselves. Now they don't have the leading-edge fabs and technology essential to be competitive in the market. All they can do is keep cutting the price and relying on artificial financial support to stay in business.
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