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Samsung Expects Chip Shortage, Lifts Handset Target
Mon Mar 15, 2004 05:04 AM ET


By Kim Miyoung
SEOUL (Reuters) - Samsung Electronics Co Ltd said on Monday it expected a global shortage of basic memory chips later this year as chip makers switch production to more specialized chips used in cell phones and digital cameras.

Samsung, which is the world's top maker of memory chips, also said its mobile phone sales were likely to top an earlier target of 65 million units this year and beat 55.6 million in 2003 sales.

"Such bullish forecasts for cell phones and DRAM are just confirmation of a generally more upbeat industry outlook. Samsung's own estimates have been very conservative," said Yu Chang-eyun, an analyst at BNP Paribas Peregrine.

Deutsche Bank expects Samsung to ship 75 million handsets in 2004, while Credit Suisse First Boston sees 76.8 million units.

Samsung has bet on hefty growth in demand for the basic DRAM (dynamic random access memory) chips used mostly in personal computers and mobile phones, lifting investment faster than its rivals.

"Limited DRAM supply helped chip prices stay firm in the first quarter, which is a traditionally slow season, and a chip shortage is expected starting in the second half," Samsung said in a statement.

Eighty percent of DRAM chips, the most common type of memory chips, are used in personal computers.

"We expect a shortage of DRAM chips in the second half as PC demand is traditionally higher prior to students returning to school in the fall, and before the Christmas holiday season," a senior official at Samsung told Reuters.

A rebound in corporate spending is expected to drive double-digit growth in PC demand at the same time as chip makers cut DRAM capacity to instead make flash memory chips to meet explosive demand for camera phones and digital cameras.

DRAINING DRAM

The price of 256-megabit DDR DRAM chips, the industry standard, stood at $4.53 per unit late on Friday, according to data from online microchip broker DRAMexchange.com.

Analysts expect DRAM prices of around $4.5-$5 in the second half, little changed from the same period a year ago.
"Supply is likely to remain slightly tight in the second half as chip makers are switching a significant portion of their DRAM capacity to flash chips to meet growing demand for flash," said Chin Yeong-hoon, an analyst at Daishin Securities.

Chin expected Samsung to have slashed DRAM output to 60 percent of its total memory production this quarter from above 80 percent two years ago to lift flash chips above 35 percent.

Demand for flash, which stores and erases data quickly in digital electronic goods, is so strong that Samsung has said it was meeting only 60-70 percent of demand.

Samsung, which is the world's third-largest cell phone maker after Nokia and Motorola, is the latest phone maker reinforcing an upbeat outlook for mobile phones, the world's biggest consumer electronics market worth almost $100 billion a year.

Market research group Gartner said global sales of mobile phones could grow to 580 million units this year, 20 million more than predicted last month, bolstered by stellar demand for phones with color screens in developed markets and cheap handsets in emerging markets such as China, India and Russia.

Shares in Samsung, Asia's most valuable technology company with a market value of about $72 billion, closed up 0.2 percent at 525,000 won after rising as high as 1.7 percent. ($1=1180.0 won) (Additional reporting by Jean Yoon and Rhee So-eui)

© Reuters 2004. All Rights Reserved.

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