* Surging demand for tablets, smartphones in China
* China diversifies chipmakers' client base from Apple,
* Prices of DRAM, NAND memory chips starting to rise
By Miyoung Kim
SEOUL, July 4 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 Inc, after years of cautious
investment kept supply in check.
Manufacturers including Toshiba Corp and SK Hynix
are poised to reap the rewards of soaring demand for
cut-price tablets and smartphones in China, the world's biggest
smartphone market, and the emergence of Chinese mobile device
makers such as Huawei Technologies Co Ltd.
At the high end of the spectrum, demand for gadgets armed
with ever greater memory capacity will fuel chip sales even if
the market for relatively expensive handsets does not see the
kind of rapid growth it has in the past.
All of this, combined with reduced investment since 2011,
means the prices of dynamic random access memory (DRAM) and NAND
memory chips have started to rise, and chipmakers are enjoying
the most bargaining power they have had in years.
"Chipmakers are reaping the benefits of curtailed investment
of recent years just when demand is exploding," said Hong
Sung-ho, an analyst at I'M Investment & Securities.
Chipmakers had little bargaining power until early last year
as Apple and Samsung were the sole major buyers of NAND chips
used in mobile devices. The two global heavyweights, which focus
on the high-end market, are now struggling with slowing growth
as this most profitable segment nears saturation.
CHINA IN DRIVING SEAT
China is driving the industry's rapid shift to cheaper
smartphones, helping chipmakers broaden their customer base from
Apple and Samsung Electronics Co Ltd.
The growth of Chinese smartphone makers such as Huawei, ZTE
Corp and Lenovo Group Ltd is
threatening to weaken the dominance of Apple and Samsung,
playing into the chipmakers' hands.
Some 70 percent of China's smartphone shipments are sold at
1,000 yuan ($160) or less, while 10 percent are in the
1,000-3,000 yuan range. Super-cheap tablets costing less than
$100 are also soaking up supply.
"Despite weakening demand from Apple, NAND prices have...
firmed up, largely thanks to strong demand growth from China,"
said HMC Investment & Securities analyst Greg Nho.
"The size of the Apple order was a big price-swing factor,
but now demand from Chinese manufacturers is more than
offsetting this volatility."
Prices of DRAM chips, mainly used in computers, have leapt
nearly 90 percent so far this year even as PC sales have
plummeted, while the market for NAND memory chips has tightened.
Outside of China, demand for NAND chips is increasing as
consumers need more memory capacity to play high-quality video
and music on up-market gadgets.
"In the old days, we only took a few photographs. Now we
take videos as well, at potentially higher resolutions," said
Damian Thong, director of research at Macquarie Capital
Securities in Tokyo.
"I actually think the opportunity for NAND flash is
enormous, still, and very untapped."
HTC Corp'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 yen ($300 million). Samsung - the world's
leading producer - is building a $7 billion NAND plant in China.
Micron Technology Inc, which is looking to complete
the acquisition of bankrupt Japanese chipmaker Elpida Memory Inc
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 percent to $12.3 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
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
percent of the market, followed by Toshiba, which has a 28
percent share and SK Hynix with 13 percent.