Micron continued its quest for market share in February by buying the rest of its DRAM joint venture with Kobe Steel. The Idaho company acquired the Japanese company's 75% equity interest in KMT Semiconductor and turned it into a wholly-owned unit.

Unlike the overall chip business, the 2001 DRAM market looked like a bad year from the very beginning. International Data Corp. in February said that "severe price erosion partly caused by soft demand for PCs" will drive DRAM revenues down 18% to $23.8 billion in 2001.

"Inventory carryover will continue to plague demand and supply conditions until the middle of the third quarter," predicted IDC analyst Soo Kyoum Kim, "making it difficult to maintain current pricing levels." As a result, RAM prices this year will fall 46% from 2000, he predicted. But even this bleak outlook worsened.

By late May, the World Semiconductor Trade Statistics (WSTS) group predicted that memories would take the biggest hit in 2000, dropping 20.9%. But then it predicted that memories would lead a semiconductor turnaround later in 2001 and will rise 20.2% to $46.8 billion in 2002.

By late June, the DRAM business started collapsing at an unprecedented rate. Dataquest said this chip sector would suffer its worst year in history in 2001, dropping 55.5% to $14 billion in 2001 from $31.5 billion in 2000. Incredibly, the DRAM business was expected to end up 2001 at one-third the size it was in 1995, when memories hit a highpoint in revenues at more than $40 billion.

By summer, prices had plummeted 80% in the past year, with spot prices down to $2 and contract prices below $3 for a 128-megabit DRAM. There was talk of cutting back production, but Micron, one of the "big three" DRAM suppliers, didn't plan to reduce output. "To reduce capacity means to run less efficiently," said an official. "Gaining more market share is one element of what we're doing, but it's more about being a low-cost provider," he said.

Elpida Memory, the year-old DRAM joint venture of Hitachi and NEC, claimed in July to be going all out to increase its DRAM business. It aimed to nearly double its market share and take 20% of the world's DRAM market by 2003. But Elpida's DRAM business at this time was awful. "We're in a tough spot right now," acknowledged Mike Despotes, CEO of Elpida's U.S. subsidiary. "We're not only seeing a dramatic decline in terms of ASPs average selling prices but also a decline in demand." By June, DRAM prices had fallen below manufacturing costs.

A new round of consolidation began in August. Toshiba started talking to other DRAM suppliers about buying its DRAM business. Some observers figured that only two-or-three major DRAM vendors are needed to handle the entire global business.

DRAM suppliers--especially the Japanese--were drowning in red ink as average selling prices for memories continue to drop like a rock.

The merger of LG Semicon into Hyundai Electronics created Hynix Semiconductor, but that combine was caught up in a severe financial crunch in August and needed money desperately to meet more than $2 billion in short term debt maturing over the next 12 months. But creditors approved a $2.3 billion debt-to-equity conversion and the rollover of $1.9 billion in loans.

But the debt-to-equity swap was strongly opposed by the U.S. Treasury Dept. and U.S. Trade Representative, as well as Micron Technology. The Americans believed that the swap violated Korea's pledge not to bail out domestic chip makers using local banks, many of which controlled by the South Korean government.

With observers wondering just how much longer the South Korean company could keep going with its huge debt load, Hynix acknowledged in October that it was considering the sale of some of its redundant fabs as part of its financial self-rescue effort.

The DRAM picture got even darker in October. "The DRAM market will not reach last year's revenue levels again until well beyond 2005," said iSuppli analyst Nam Hyung Kim. And he said that troubled DRAM makers would suffer 12 more months of market gluts, price erosion, and losses. Supply/demand equilibrium will not occur in DRAMs until the fourth quarter of 2002, he predicted. DRAM revenue for 2001 will decline 67%--largest drop in the history of the memory market.

The iSuppli scenario depended on current and projected production cuts being made by major DRAM suppliers and an "across-the-board reduction in capital spending on new plants and equipment by the DRAM industry as a whole during the next few quarters." But if significant production cuts weren't made, Kim said, the survival of several suppliers could be threatened.

Hynix Semiconductor got new life in November, when it finally put together an $8 billion creditor rescue package. Some competitors and analysts had been hoping the debt-ridden South Korean chip maker would go belly up and thus get rid of a lot of DRAM overcapacity.

Taiwan's big move into DRAMs a couple of years ago couldn't have happened at a worse time. Just as production really got rolling in 2001, the global DRAM industry moved from feast to famine. Spot price for an industry standard 128-megabit DRAM, for example, fell more than 90% during the past year to less than a buck a chip in October.

No upturn in DRAM pricing was expected any sooner than the second half of next year, so Winbond Electronics, Taiwan's leading DRAM maker, aimed to phase out its commodity DRAM production by the end of 2002.

Infineon Technologies was scrambling in November to get bigger piece of the DRAM action. A likely strategy here was that the German company wanted to end up as one of three or so major suppliers of the commodity DRAM chips. That was thought to be behind its move to enter into long talks with Toshiba, which was looking for a way out of the shrinking DRAM business. But the two DRAM suppliers couldn't agree, so the Germans turned to Taiwan to see if could pick up a DRAM supplier there.

Infineon accounts for 8% of the world DRAM market, trailing Samsung Electronics' 22% share, Micron Technology's 20%, and Hynix Semiconductor's 17%, according to Nomura Securities. Teaming with Toshiba or a Taiwanese chip maker in DRAMs would give Infineon a larger critical mass to compete against the big three producers. With 300 mm wafer fabs coming on line, analysts figured that only five or six DRAM suppliers would be needed to meet global demand.

What Micron CEO Steve Appleton "is trying to do is eliminate a competitor," said Dan Hutcheson, president of VLSI Research. "Hynix has been his biggest problem by trashing prices all year because they are willing to sell below variable cost. They'll probably get it for a song and then shut it down," the market researcher says.

Scratch one major DRAM supplier. Toshiba is closing its commodity DRAM business and will gradually phase out DRAM production. And in a bit of a surprise, the Japanese chip giant also is selling its Dominion Semiconductor operation in Virginia to Micron Technologies.

For Micron, the deal will expand both its DRAM market share and manufacturing capacity. Like similar deals the Idaho chip maker has made before, the acquisition "will better position the company to more cost-efficiently produce its products and to establish new customer relationships throughout the world," says CEO Steve Appleton.

Micron was still talking with Hynix Semiconductor at the end of 2001, indicating that the Idaho memory chip maker is seeking a formal merger instead of a "strategic alliance" with debt-laden Hynix. Two scenarios were under consideration, both of which would seem to put Micron in charge. Either the companies would merge their entire semiconductor operations or they would only merge the DRAM operations. A memorandum of understanding should be signed by January, according to Hynix.

A Micron-Hynix combination would control 22 fabs--16 of which are DRAM plants--and control nearly 40% of the DRAM market, beating out the current market leader, Samsung Electronics.

(Return to 2001 Top 10 list or go to No. 4).