Hynix, ``Cut Down Semiconductor Production``

Hynix Semiconductor Inc. (HSI) (former Hyundai Electronics) declared to cut down the 64 Mega D-Ram production. It is the first announcement of cut down among world’s semiconductor makers. As Japanese companies are planning to reduce their production, the HIS’s, the third largest semiconductor maker in the world, movement is becoming the center of attention.

# Hynix’ cut down production, 3 percent of world production decreases = The HIS announced yesterday that they will temporarily stop operations from their factory in Eugene, Oregon, U.S. for 6 months. The factory exclusively producing 64 D-Rams will change to a facility to produce 256 MSD-Rams during that period.

With the suspension of the operation, the production of D-Ram wafer by the HIS will be down by 16 percent, and so will be the 64 Mega SD-Ram by 50 percent (72 million units). The world market share of the HIS was 17.1 percent at the end of last year. Experts are estimating that the world production will decrease by 2.7 ~ 3 percent due to the temporary stoppage of the Eugene factory.

# Background of the cut down = The background of the production reduction is the long lasting depression in the D-Ram market due to the reduced demand of PCs. Particularly in the case of the 64 MD-Ram, the retail price is 1.5 dollars higher than the original production cost. For this reason, Samsung Electronics Co. (SEC) is also increasing the production of the 128M and 256MD-Rams, more profitable items, reducing the production of 64D-Rams. However, if other major makers, such as the Samsung Micron Co. (SMC), does not reduce their production, the market share of the semiconductor can be down.

# Will other companies cut down as well? = First, Japanese and Taiwanese companies seem to have reduced their production as well. The Elpida Memory Inc (currently estimated as the 4th largest company)., a company for which the 5th largest NEC and 7th Hitachi Co. jointly invested, and the Toshiba Co. are monitoring the world market participating the reduction movement, and so are the Taiwanese companies including the Vanguard Co..

However, the SEC and the SMC are not planning to cut down their production, since nobody knows when the market is to revive again, and if they reduce their production, other companies will benefit with the increased market share.

Especially, if Japanese and Taiwanese companies first reduce their production, and the demand of PC is recovered, the price of D-Rams can skyrocket. Annalist Kim Young-Joon of Kyobo Trade Co. said, ``The order amount of PC main boards, an early indicator for the semiconductor market, made by Taiwanese companies has begun to increase from July. If the reduction and the increase of demand come together, the price of D-Rams can go up.`` The price of D-Rams in Asian market maintained a steady tone yesterday.

artemes@donga.com