* Elpida to cut PC memory output by 26 pct from this month
* Cut to benefit Samsung, Hynix-analysts
* Samsung shares gain 2.6 pct, Hynix up 4.6 pct
* Elpida rises 1.9 pct, underperforming overall market
(Recasts, adds background, comment)
By Ju-min Park and Sachi Izumi
SEOUL/TOKYO, Nov 5 (Reuters) - Elpida Memory Inc’s 6665.T first output cut in two years boosted shares of its main rivals, Samsung Electronics (005930.KS) and Hynix Semiconductor (000660.KS), in a move that could help the South Korean firms increase their share of the crowded memory chip sector.
Elpida’s decision to reduce its output of DRAM (dynamic random access memory) chips for PCs by a quarter is expected to curb tumbling prices, benefiting its Korean competitors which already have the advantage of lower production costs. [ID:nTOE6A300I]
Sluggish PC sales have left the DRAM market in a state of oversupply and depressed prices by more than 40 percent in the past six months, quickly ending the sector’s one-year boom.
“The production cut is Elpida’s declaration of surrender while it is suffering falling demand,” said Lee Seung-woo, an analyst at Shinyoung Securities in Seoul.
Shares in second-ranked Hynix extended gains from the previous day, surging 4.6 percent on Friday.
Samsung, the world’s biggest DRAM chipmaker as well as the No.1 maker of LCD screens, rose 2.6 percent, also buoyed after a source said its plan to build a plant in Suzhou, China had been approved by the government. [ID:nTOE6A4019]
Shinyoung’s Lee added that both South Korean stocks seemed underpriced, which may leave more room for further gains.
Shares of Elpida, ranked No. 3 in the global DRAM sector, gained 1.9 percent, but underperformed the overall market.
Graphics on DRAM prices: link.reuters.com/tac93q
“It is quite certain that Elpida’s output cut will benefit its South Korean rivals,” said Takeo Miyamoto, an analyst at Deutsche Securities in Tokyo.
“They (Samsung and Hynix) are making profits because they are moving ahead with the miniaturisation process, and if rival maker Elpida shrinks production, their supply will increase.”
Chipmakers have been investing in shrinking the size of chips, using narrower circuitry that allows them to create more storage capacity on silicon wafers and to cut per-chip production costs.
Elpida Chief Executive Yukio Sakamoto believes that the sector will emerge from the current slump in the April-June quarter next year as demand for smartphones and tablet computers increases.
These devices are equipped with premium DRAM chips designed for mobile products, into which Elpida has been pouring resources. They consume less power than traditional DRAM chips for PCs, and Samsung and Elpida are said to be leading the mobile DRAM sector.
Elpida has also been considering deepening its ties with Taiwanese peers in a bid to rise out tough market conditions. [ID:nTOE696015]
Elpida said it may buy stakes in Taiwanese chipmakers, and Bloomberg News has quoted Elpida’s Sakamoto as saying in an interview that possible targets included Powerchip Technology Corp 5346.TWO, ProMOS Technologies 5387.TWO and Winbond Electronics Corp (2344.TW).
Elpida and Powerchip are long-term partners and operate Rexchip, a joint venture in Taiwan, while the Japanese company outsources some production to ProMOS and Winbond.
“It wouldn’t help if Elpida took a minority stake in Powerchip,” Deutsche’s Miyamoto said. “If it took a majority stake, and sent a president and half of the board members, then it might be possible to really pit themselves against the South Korean makers.” (Reporting by Ju-min Park in SEOUL and Sachi Izumi in TOKYO; Editing by Joseph Radford)