Money May 17, 2012
Seoul: Shares in South Korea's Samsung Electronics extended their heavy slide on Thursday, on speculation that arch rival Apple Inc is looking to cut its reliance on Samsung memory chips and turn increasingly to Japanese chipmaker Elpida.
Samsung shares fell 2 percent to a two-month low in morning trade, having shed more than $10 billion since an online Taiwanese trade news site reported on Wednesday that Apple had placed large new orders with the struggling Elpida for dynamic random access memory (DRAM) chips used in mobile devices.
However, one industry analyst and two sources familiar with Elpida's sales suggested the selloff in Samsung stock had been overdone, noting Elpida's current production offered limited scope in the short term to take market share from Samsung.
One source said Elpida was already selling more than half of its DRAM mobile chips to Apple, an estimate supported by Merrill Lynch.
"Apple has been diversifying its suppliers and the deal with Elpida had no major impact on other major suppliers as Elpida's share of the global mobile DRAM market is quite small," said the source, who was not authorized to speak to the media.
Taiwan's DigiTimes said Apple had recently placed large mobile DRAM orders with Elpida's plant in Hiroshima, Japan. The report sent shares in both Samsung and rival South Korean chipmaker SK hynixtumbling on Wednesday.
However, in contrast to Samsung's continued slide, shares in SK hynixrallied 3.3 percent on Thursday.
"(There's) nothing new in our view given Elpida usually assigns about 40-60 percent of its mobile DRAM capacity for Apple according to our channel checks," Merrill Lynch analyst Simon Woo said.
Lee Sun-tae, an analyst at NH Investment & Securities, agreed: "The market is overreacting to the news. Mobile DRAM accounts for only 10 percent of Samsung's overall operating profit of around 26 trillion estimated for this year."
US-based Micron Technology Corp is in talks to acquire Elpida's business as the Japanese firm tries to restructure after tough market conditions and global competition drove it into bankruptcy protection.
Apple did not response to queries on the report and Micron declined to comment. Samsung and Elpida's court-appointed trustees also declined to comment.
Samsung controls over 50 percent of global mobile DRAM market, which is set to grow rapidly due to booming smartphone and tablet sales. SK hynix has around 22 percent, followed by Elpida with around 16 percent, according to analysts.
Elpida has attracted interest from bidders mainly due to its mobile DRAM technology. SK hynix also participated in the first round of auction for Elpida.
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