So where are the chips? Samsung wants to know

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So where are the chips? Samsung wants to know

Samsung Electronics spent about $24 billion in the past two years, beefing up the world’s biggest maker of memory chips to meet demand. It wasn’t enough.

Surging sales of smartphones, including its own Galaxy line has Samsung turning to its biggest rival to buy mobile dynamic random access memory chips. For the first time, the company that makes more than half the world’s mobile DRAM chips may buy them from SK Hynix, said Shin Jong-kyun, head of Samsung’s mobile business.

The supply squeeze doesn’t just pose a problem for Samsung, which releases its new flagship Galaxy S4 phone in Korea tomorrow. The chips, along with NAND memory, are needed in handsets and tablet computers made by Apple, Nokia and HTC for functions from playing video and multitasking to storing books and photographs.

“Not only DRAM chips, but all memory chips for mobile devices show signs of shortages,” said Kim Sung-in, an analyst at Kiwoom Securities, who recommends buying both Samsung and Hynix shares. “Samsung’s biggest chip customer is itself and things will only get out of hand with the approach of the third quarter, typically the strongest time of year.”

The second half of the year is when Samsung expects to release a smartphone using its own Tizen operating system and an updated version of the Galaxy Note. It’s also when Apple usually releases details of a new handset.

The rising demand for mobile chips follows a glut in production of the type of DRAM used in personal computers that saw prices slump, driving some producers to the wall.

SK Hynix, Micron, Nanya Technology, Powerchip Technology and other Samsung rivals lost a combined $21 billion from 2008-12, according to analyst estimates and company data. Some Taiwanese makers quit the business, while Tokyo-based Elpida Memory sought protection from creditors before Boise, Idaho-based Micron Technology. bought it last year.

Chip prices have since recovered as suppliers including Micron kept DRAM output steady. Last year, Toshiba, the world’s second-biggest maker of NAND flash memory, said it will reduce production by 30 percent.

Benchmark 2 gigabytes, 1,333 megahertz DRAM chips have more than doubled to $1.69 since the end of November, according to TrendForce’s DRAMeXchange, Asia’s largest market for the components.

“Mobile DRAM supply started to slow from the third quarter of last year as players had cut investment a lot,” said Byun Han-joon, an analyst at KB Investment & Securities. “There’s a possibility that demand for mobile chips may increase faster than had been anticipated so Samsung is trying to brace for it.”

SK Hynix, the world’s second-largest supplier, counts Apple among its biggest customers, with the maker of iPhones providing 9.3 percent of sales, according to data compiled by Bloomberg. Apple ranks behind only Hon Hai Precision Industry, which assembles the iPad, the data show.

Global smartphone sales rose 34 percent last year to $294 billion, according to data compiled by Bloomberg Industries.

Among the flagship devices announced in the past 12 months are HTC’s One, Nokia’s Lumia 920, the BlackBerry Z10 and Apple’s iPhone 5.

“Chip demand for smartphones remains strong while the market will be flooded out with new devices,” said Lee Sei-cheol, a Seoul-based analyst at Meritz Securities.

As of the fourth quarter last year, Samsung had 51 percent of the global mobile DRAM market, followed by SK Hynix’s 25 percent and 20 percent for Elpida, according to market researcher IHS iSuppli.

Any supply squeeze is likely to help second-tier players such as Taoyuan, Taiwan-based Nanya Technology, which is ramping up production of mobile chips and expects the business will climb to 10 percent of revenue by the end of the year from 1 percent in the first quarter. Inotera Memories, a Taiwan-based venture between Nanya and Micron, expects mobile DRAM will rise to 20 percent of sales by the fourth quarter from 5 percent at the end of 2012, Chairman Charles Kau said. Bloomberg
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