SEOUL/TOKYO, Nov 22 (Reuters) - Shares in Asian chip makers such as Samsung Electronics (005930.KS: Quote, Profile, Research) and Toshiba Corp. (6502.T: Quote, Profile, Research) skidded on Tuesday after two U.S. rivals set a deal to produce chips used in digital cameras.
The flash memory chip alliance between Intel Corp. (INTC.O: Quote, Profile, Research) and Micron Technology Inc. (MU.N: Quote, Profile, Research) triggered concerns over growing competition and a price collapse in the fast-growing $11 billion NAND flash market, which is dominated by Asian firms.
"With more players, the market concern is that a price drop would be more severe," said Jae H. Lee, an analyst at Daiwa Securities in Seoul.
"DRAMs (dynamic random access memory chips) were already considered a commodity, and now maybe people are starting to believe flash memory will go the same way," added Lee.
The price of NAND chips, used in digital cameras and photo-snapping cellular phones because they can retain data even when power is shut off, is already dropping at an annual rate of some 40 percent.
News of the tie-up hit Asian chip makers hard, with shares in South Korea's Samsung Electronics Co. Ltd., the world's top NAND flash chip maker, falling 4.2 percent to 595,000 won by 0317 GMT.
Second-ranked Toshiba of Japan dropped 6.9 percent, while the world's No. 3 player Hynix Semiconductor Inc. (000660.KS: Quote, Profile, Research) , also of South Korea, fell 5.6 percent to 22,100 won.
Shares in California-based flash chip maker SanDisk Corp. (SNDK.O: Quote, Profile, Research) , which analysts see as likely to be hurt most by the deal, tumbled 16 percent on Nasdaq. Taiwan microchip designer and smaller rival Silicon Motion Inc. (SIMO.O: Quote, Profile, Research) fell 6.6 percent.
Samsung has a 50 percent flash market share, Toshiba 23 percent and Hynix 13 percent. Smaller European players, Germany's Infineon (IFXGn.DE: Quote, Profile, Research) and Franco-Italian STMicroelectronics (STM.MI: Quote, Profile, Research) (STM.PA: Quote, Profile, Research) , have about 2 percent each.
Intel and Micron said on Monday they would each contribute some $1.2 billion in assets to form the widely anticipated venture dubbed IM Flash Technologies LLC, targeting initial production of NAND flash chips in early 2006.
At the same time, Apple Computer Inc. (AAPL.O: Quote, Profile, Research) said it would pay Samsung and Hynix $500 million and $250 million respectively from to supply flash memory chips used in its market-leading iPod music player. The deals are part of $1.25 billion pre-payment agreement by Apple with Samsung, Toshiba, Hynix, Intel and Micron.
On the plus side, that means Apple expects a surge in demand. But it also marks a move by the U.S. company to increase its suppliers from outside Asia
"Apple's decision to diversify its suppliers and enter long-term deals could give new entrants more confidence," said Lee Min-hee, an analyst at CJ Investment & Securities. "Although the flash market is growing significantly, the entry of new rivals will definitely hurt profitability and increase price competition in the market."
Samsung and Hynix both said they were not worried about the Intel/Micron tie-up and expected increasing demand will help expand the flash chip market further.
Samsung said on Monday it would invest 636.9 billion won ($614.2 million) in new memory chip lines to boost production of flash and DRAM (dynamic random access memory) chips.
Some analysts said the share fall was overdone because a sharp drop in flash chip prices could spur more demand.
"The reaction has been excessive," Lim Chang-gue, fund manager at Samsung Investment Trust Management.
"You need to keep in mind NAND flash memory chip demand will increase very rapidly. You can see this by Apple's announcement that it would get supply from Samsung, Hynix, Toshiba and other NAND-flash makers. There's still room there for profits."
Industry-wide growth in flash memory sales topped 30 percent in the lastest quarter.
"Flash memory is the main source of income for Toshiba... (but) even if Intel enters the market, it will take time to grab certain market share," said Toshihiko Matsuno, assistant general manager investment research department at SMBC Friend Securities.
The venture benefits Intel by giving it a second line of non-volatile memory beyond its existing family of NOR-type flash products, market research firm iSuppli said, adding Micron gained the capital investment needed to increase its NAND market share.
Intel is the world's top maker of NOR-type flash memory but NAND-type flash chips are expected to outgrow NOR this year to reach a value of $10.8 billion against a shrinking $6.5 billion NOR market this year.
NOR is losing ground to newer NAND flash chips because makers of digital gadgets are increasingly using the latter, which is suitable for pictures and music downloads and cheaper than NOR. (Additional reporting by Rafael Nam in Seoul)
The flash memory chip alliance between Intel Corp. (INTC.O: Quote, Profile, Research) and Micron Technology Inc. (MU.N: Quote, Profile, Research) triggered concerns over growing competition and a price collapse in the fast-growing $11 billion NAND flash market, which is dominated by Asian firms.
"With more players, the market concern is that a price drop would be more severe," said Jae H. Lee, an analyst at Daiwa Securities in Seoul.
"DRAMs (dynamic random access memory chips) were already considered a commodity, and now maybe people are starting to believe flash memory will go the same way," added Lee.
The price of NAND chips, used in digital cameras and photo-snapping cellular phones because they can retain data even when power is shut off, is already dropping at an annual rate of some 40 percent.
News of the tie-up hit Asian chip makers hard, with shares in South Korea's Samsung Electronics Co. Ltd., the world's top NAND flash chip maker, falling 4.2 percent to 595,000 won by 0317 GMT.
Second-ranked Toshiba of Japan dropped 6.9 percent, while the world's No. 3 player Hynix Semiconductor Inc. (000660.KS: Quote, Profile, Research) , also of South Korea, fell 5.6 percent to 22,100 won.
Shares in California-based flash chip maker SanDisk Corp. (SNDK.O: Quote, Profile, Research) , which analysts see as likely to be hurt most by the deal, tumbled 16 percent on Nasdaq. Taiwan microchip designer and smaller rival Silicon Motion Inc. (SIMO.O: Quote, Profile, Research) fell 6.6 percent.
Samsung has a 50 percent flash market share, Toshiba 23 percent and Hynix 13 percent. Smaller European players, Germany's Infineon (IFXGn.DE: Quote, Profile, Research) and Franco-Italian STMicroelectronics (STM.MI: Quote, Profile, Research) (STM.PA: Quote, Profile, Research) , have about 2 percent each.
Intel and Micron said on Monday they would each contribute some $1.2 billion in assets to form the widely anticipated venture dubbed IM Flash Technologies LLC, targeting initial production of NAND flash chips in early 2006.
At the same time, Apple Computer Inc. (AAPL.O: Quote, Profile, Research) said it would pay Samsung and Hynix $500 million and $250 million respectively from to supply flash memory chips used in its market-leading iPod music player. The deals are part of $1.25 billion pre-payment agreement by Apple with Samsung, Toshiba, Hynix, Intel and Micron.
On the plus side, that means Apple expects a surge in demand. But it also marks a move by the U.S. company to increase its suppliers from outside Asia
"Apple's decision to diversify its suppliers and enter long-term deals could give new entrants more confidence," said Lee Min-hee, an analyst at CJ Investment & Securities. "Although the flash market is growing significantly, the entry of new rivals will definitely hurt profitability and increase price competition in the market."
Samsung and Hynix both said they were not worried about the Intel/Micron tie-up and expected increasing demand will help expand the flash chip market further.
Samsung said on Monday it would invest 636.9 billion won ($614.2 million) in new memory chip lines to boost production of flash and DRAM (dynamic random access memory) chips.
Some analysts said the share fall was overdone because a sharp drop in flash chip prices could spur more demand.
"The reaction has been excessive," Lim Chang-gue, fund manager at Samsung Investment Trust Management.
"You need to keep in mind NAND flash memory chip demand will increase very rapidly. You can see this by Apple's announcement that it would get supply from Samsung, Hynix, Toshiba and other NAND-flash makers. There's still room there for profits."
Industry-wide growth in flash memory sales topped 30 percent in the lastest quarter.
"Flash memory is the main source of income for Toshiba... (but) even if Intel enters the market, it will take time to grab certain market share," said Toshihiko Matsuno, assistant general manager investment research department at SMBC Friend Securities.
The venture benefits Intel by giving it a second line of non-volatile memory beyond its existing family of NOR-type flash products, market research firm iSuppli said, adding Micron gained the capital investment needed to increase its NAND market share.
Intel is the world's top maker of NOR-type flash memory but NAND-type flash chips are expected to outgrow NOR this year to reach a value of $10.8 billion against a shrinking $6.5 billion NOR market this year.
NOR is losing ground to newer NAND flash chips because makers of digital gadgets are increasingly using the latter, which is suitable for pictures and music downloads and cheaper than NOR. (Additional reporting by Rafael Nam in Seoul)
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