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China hands Asian memory makers massive bargaining chip

Reuters/ AFR | July 4, 2013
Asian chipmakers are set to cash in on a major realignment in the volatile industry which is tilting the power balance their way at the expense of gadget makers such as Apple, after years of cautious investment kept supply in check.

"I actually think the opportunity for NAND flash is enormous, still, and very untapped."

HTC's flagship smartphone HTC One, for example, has NAND memory capacity of 64 gigabytes, four times bigger than that of most other high-end models.

"Nowadays, consumers want more feature-packed smartphones and we'll have to make sure we can produce these gadgets at affordable prices to compete in the market," said an executive from ZTE, who declined to be identified as he was not authorised to speak to the media.

No.2 NAND manufacturer Toshiba said on Tuesday it would expand a production facility in Japan with an investment of nearly ¥30 billion ($US300 million). Samsung - the world's leading producer - is building a $US7 billion NAND plant in China.

Micron Technology, which is looking to complete the acquisition of bankrupt Japanese chipmaker Elpida Memory before the end of August, plans to increase investment in 2014 as it integrates with the Japanese firm.

But even as some chipmakers boost investment for the first time in years, few believe the market is heading for a glut. Indeed, memory chipmakers' total capital spending this year is set to decrease by 2.6 per cent to $US12.3 billion, according to HMC Investment & Securities.

Most manufacturers are keeping investment to a small scale as they prepare for the arrival of three-dimensional chip engineering, a major technological leap from the current planar structure.

Macquarie's Damian Thong said demand for NAND chips would continue to outstrip supply, even with the new production facilities in the pipeline.

"Memory prices and memory profitability will remain high for the next 12 months," he said.

Samsung, which had been one of the most aggressive chip investors, has become conservative in recent years, a departure from its traditional approach of keeping rivals at bay by not allowing profitability to get too high.

"By creating an oversupply situation, Samsung was able to keep memory competitors weak," Bernstein analyst Mark Newman said in a report on Tuesday.

"Today, however, that strategy of lower memory chip prices actually just helps Samsung's handset and tablet competitors. Samsung is thus becoming highly motivated to generate memory shortages and high memory pricing."

Samsung is the world's top NAND chip maker with around 38 per cent of the market, followed by Toshiba, which has a 28 per cent share and SK Hynix with 13 per cent.



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