bargaining power

Asia Chip Makers Stand to Benefit From Move to Cut-Price Gadgets

Manufacturers, including Toshiba 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 like Huawei Technologies.

At the high end of the spectrum, demand for gadgets armed with ever-greater memory capacity will bolster 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 and NAND memory chips have started to rise, and chip makers are enjoying the most bargaining power they have had in years.

“Chip makers 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.

Chip makers had little bargaining power until early last year as Apple and Samsung were the sole major buyers of the NAND chips used in mobile devices. The two global heavyweights focus on the high-end market and they are now struggling with slowing growth as this profitable segment nears saturation.

China is driving the industry’s rapid shift to cheaper smartphones, helping chip makers broaden their customer base. Additionally, the growth of Chinese smartphone makers like Huawei, ZTE Corp. and Lenovo is threatening to weaken the dominance of Apple and Samsung.

About 70 percent of China’s smartphone shipments are sold at 1,000 renminbi, or about $160, or less, while 10 percent are in the 1,000 to 3,000 renminbi range. Supercheap tablets costing less than $100 are also soaking up supply.

“The size of the Apple order was a big price swing factor, but now demand from Chinese manufacturers is more than offsetting this volatility,” said the HMC Investment Securities analyst Greg Nho.

Prices of DRAM chips, used mainly in computers, have leaped 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 higher-priced 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.”

For example, HTC’s flagship smartphone, the HTC One, has NAND memory capacity of 64 gigabytes, four times more than that of most other high-end models.

The second-largest NAND manufacturer, Toshiba, said Tuesday that it would expand a production facility in Japan with an investment of nearly ¥30 billion, or $300 million. Samsung, the world’s leading producer of the chips, is building a $7 billion NAND plant in China.

Micron Technology, which is looking to complete the acquisition of the bankrupt Japanese chip maker Elpida Memory before the end of August, plans to increase investment in 2014 as it integrates with the Japanese company.

But even as some chip makers bolster investment for the first time in years, few believe the market is heading for a glut. Indeed, memory chip makers’ 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 structure.

Mr. Thong, of Macquarie, 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 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,” Mark Newman, a research analyst at Sanford C. Bernstein, said in a report 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 about 38 percent of the market, followed by Toshiba, which has a 28 percent share, and SK Hynix, with 13 percent.

Article source: http://www.nytimes.com/2013/07/05/technology/asia-chip-makers-stand-to-benefit-from-move-to-cut-price-gadgets.html?partner=rss&emc=rss

News Analysis: European Natural Gas Pipelines Plagued by Uncertainties

South Stream, backed by Gazprom, the monopoly exporter of Russia’s natural gas, would run underneath the Black Sea and deliver large amounts of fuel to the European Union, sometime in the second half of this decade.

Despite years of promotion, the cost and even the exact route for South Stream are still unclear. Nevertheless, the plan already has served a valuable purpose for Russia by casting further doubt on the viability of rival projects that would loosen Moscow’s grip on the European market. It has also weakened the bargaining power of middlemen like Ukraine that have sought to cash in on their strategic location.

“More than ever South Stream looks like an implausibly huge and risky investment,” said Christian Egenhofer, an energy expert at the Center for European Policy Studies, a research group in Brussels. “But the more that South Stream appears real, the more that Russia can beguile Europe into thinking that alternatives to Russian gas are unnecessary.”

The European Union relies on Russia for about 25 percent of its natural gas, and that dependency is likely to increase unless it secures alternative supplies.

In 2006, after Russia turned off the flow to Ukraine in the dead of winter, the European Commission cranked up plans developed a few years earlier to build a pipeline, called Nabucco, that would deliver gas to Europe from the Caspian region and bypass Russia.

A year later, Gazprom and Eni, a major Italian energy company, introduced plans for South Stream. At the same time, Russia also has sought to deny Nabucco vital gas supplies in Asia and woo away its customer base in the West, in a contest that has been compared with the intricacies of a chess game.

In one instance in 2007, Vladimir V. Putin, then the president of Russia, agreed with the leaders of Turkmenistan to build a new pipeline north, to Russia, depriving Nabucco of potential supplies of gas.

That same year, Mr. Putin traveled to Turkey to secure an agreement allowing Gazprom to carry out environmental and seismic tests necessary for building South Stream, just one month after European governments signed a transit agreement with Ankara for Nabucco.

It is no surprise, therefore, that both projects remain plagued by uncertainties. One big reason for skepticism is the cost.

The South Stream bill is estimated to be at least 15.5 billion euros, or $22.3 billion. That is about double what Nabucco was expected to cost, at least initially, largely because Nabucco would not run under such a large body of water as the Black Sea, and because Nabucco would carry less gas.

Many analysts say that they expect Gazprom, the most important backer, to revise South Stream’s price tag upward this year, as the prices for necessary commodities like steel and cement climb.

At the same time, new sources like shale gas and liquefied natural gas are putting downward pressure on natural gas prices, making it harder for potential investors to forecast adequate returns.

Nabucco will have to deal with similar pressures. But it also would have public backing, including exemptions from European Union rules requiring it to share its infrastructure, as well as financing from the European Investment Bank.

Marcel Kramer, the Dutch-born chief executive of South Stream, denied during a recent interview that his pipeline was little more than Moscow’s attempt to squash Nabucco.

“To do such a major exercise as a sort of defensive move would be highly irrational,” Mr. Kramer said. “There is no doubt that this is very serious, and money is being spent — considerable amounts of preparatory money is being spent — by Gazprom itself.”

Mr. Kramer emphasized that a growing number of blue-chip European energy companies including EDF, the French utility that is Europe’s largest electricity company, and Wintershall, a German oil and gas unit of BASF, were already expressing support for South Stream, showing that it was a “project of European interest.”

The main question for Europe, however, is the source of the gas, not who owns the pipeline.

Article source: http://www.nytimes.com/2011/06/14/business/energy-environment/14pipeline.html?partner=rss&emc=rss

Asia Chip Makers Stand to Benefit From Move to Cut-Price Gadgets

News Analysis: European Natural Gas Pipelines Plagued by Uncertainties

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