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Fitch: S. Korean DRAM Makers to Benefit from Elpida's Fall
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Fitch Ratings says it expects Korean dynamic random access memory (DRAM) makers, Samsung Electronics and Hynix Semiconductor, to strengthen market leading positions as Japan's Elpida Memory filed for bankruptcy protection.
"Korean DRAM makers should gain additional market share and benefit from less fierce competition, allowing them to better cope with the volatile industry cycle over the medium-to-long term," said Alvin Lim, Associate Director in Fitch's Asia Pacific Telecom, Media and Technology team.
On 27 February 2012, Elpida, the third-largest DRAM maker globally, announced that it resolved to file a petition for the commencement of corporate reorganization proceedings with the Tokyo District Court as it failed to secure financing for debt repayment. Elpida has recorded operating losses in each of the past five consecutive quarters due to a substantial fall in DRAM prices and the appreciation of the Japanese yen.
Fitch believes that Elpida will inevitably undergo massive restructuring, including likely sale of manufacturing facilities, although operations should continue in some form. This fall in supply will create opportunities for Korean makers to absorb additional market share. Korean makers have solid financial profiles and are better able to withstand the current weak DRAM cycle and improve cost competitiveness.
With less competition, the stronger South Korean DRAM makers should be able to better control supply-side risks by aligning their investment plans more closely with industry demand. Therefore, chip makers should be able to partially mitigate volatility in earnings. However, this market will remain risky for the foreseeable future. Hence Fitch does not expect an improved DRAM market to lead to rating upgrades for Hynix and SEC. Instead, it would reduce downside risks.
At end-Q311, SEC and Hynix held 45% and 22% global market shares in DRAM, respectively; Elpida held a 12% market share.
Tags: [samsung electronics] [dram] [hynix semiconductor] [elpida] [Korea]
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