October 3, 2024

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

Media Decoder: SOPA and Antipiracy Debated on MSNBC

A pair of bills that would strengthen antipiracy laws — and that could essentially censor the Internet, according to heavyweights like Google — have received scant coverage from the major television networks. The parent companies of the TV networks are among the chief supporters of the bills, having lobbied Congress to write them in the first place.

Those two facts, taken together, have caused conspiracy theories to flourish online about corporate interference in news coverage.

Chris Hayes and the staff of his show on MSNBC, “Up,” knew that when they invited Richard Cotton — the chief lawyer for NBC Universal, MSNBC’s parent company — and a prominent opponent of the bills, Alexis Ohanian of Reddit.com, on their Sunday morning broadcast. They viewed the bookings as an implicit rebuttal to the conspiracy theories, but also as a reminder that the parent companies of news organizations do indeed take sides sometimes.

NBC Universal “is not at all neutral in this legislative battle,” Mr. Hayes said in his introductory segment, noting for effect the coffee mugs in an MSNBC kitchen that read, “Steal this mug! But not our content (and our jobs).” NBC distributed the mugs to employees to rally support for the bills — known as SOPA, short for Stop Online Piracy Act, and the Protect IP Act — a few months ago.

During the long debate that ensued, Mr. Hayes, a progressive journalist and anchor who joined MSNBC full time last fall, clashed with Mr. Cotton, the longtime general counsel for NBC Universal who has led the media industry’s fight against content piracy. “This legislation,” he said, “would not affect a single site in the United States,” while Mr. Hayes and Mr. Ohanian contended that it would.

Mr. Cotton frequently gives interviews, but appearances by him on networks owned by NBC are rare. His appearance on MSNBC on Sunday morning was arranged by the company’s press office.

“Up” staffers joked afterward about Mr. Hayes having to clean out his desk, and he wrote on Twitter, also humorously, that “that show took a few years off my life.”

Article source: http://feeds.nytimes.com/click.phdo?i=b70fc512f5946438646fbb191df6ab19

DealBook Column: Two Ways for Banks to Win With I.P.O.’s

Mark Pincus, a co-founder of Zynga, at a recent event. Zynga's initial public offering was Friday.Stephen Lam/ReutersMark Pincus, a co-founder of Zynga, which went public on Friday.

There was a lot of back slapping at Morgan Stanley when Zynga had its market debut on Friday. But it should hold the self-congratulatory applause.

Morgan Stanley scored the coveted position of lead underwriter for Zynga’s initial public offering. The offering was considered a lucrative win for the bank: it was paid more than $10 million for marketing and distributing shares of the new stock. In total, Zynga paid out $32.5 million in fees to its underwriters. They included a laundry list of other Wall Street heavyweights too, like Goldman Sachs (which took in about $8.7 million).

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So far, however, Zynga’s stock appears to be a dud. Its shares, which were initially priced at $10 each on Friday morning, fell to $9.05 by the end of trading Monday.

But there were even bigger losers before Zynga’s shares began trading: some of Morgan Stanley’s wealthiest clients. The bank’s investment management group used a collection of 11 of its mutual funds to buy into pre-offering shares of Zynga in February, when it paid $14 a share on behalf of its investor clients. In total, Morgan Stanley invested $75 million of its clients’ money to buy about 5.3 million shares of Zynga. As of Monday, its clients had lost a third of their investment, or about $25 million on paper.

Morgan Stanley, which has been the top underwriter of hot technology I.P.O.’s, has often used client money to invest in pre-I.P.O. shares. Coincidentally or not, it has often later found a way to land a role as a lead underwriter. In that position, it reaps eight-figure windfalls for the firm.

Such investments raise a question that has long been whispered about but rarely asked aloud: Should investment banks seeking underwriting roles in I.P.O.’s be allowed to invest client money in prospective corporate clients ahead of a potential deal?

“I’m sure it doesn’t hurt when you’re doing the I.P.O. bake-off to be an investor,” said Steven N. Kaplan, a professor at the University of Chicago Booth School of Business.

Frank Partnoy, the director of the Center on Corporate and Securities Law at the University of San Diego and a longtime critic of Wall Street (and a former Morgan Stanley employee) has an even more skeptical view. “It’s another example of how the cash cow of I.P.O.’s creates corruption and self-dealing,” he said, adding that he takes “the corruption part as a given.”

He said that he was not so cynical as to believe that such investments were being directed by bankers or their chiefs, but that it represented a larger culture and ethos problem on Wall Street. “I doubt it’s orchestrated, but I think it’s endemic to large bank holding companies. From the top they think they have a Chinese wall. But it’s only three feet high.”

In fairness, pre-I.P.O. investments are just as often a success as they are a failure. Morgan invested client money in Groupon in January at a $4.7 billion valuation. The deal was a huge win. Groupon’s market valuation is now worth $14.2 billion. And who later led Groupon’s I.P.O.? Yep, Morgan Stanley. Its underwriting fee: $17.4 million.

Banks say that investments made on behalf of investor clients are completely separate from their investment banking divisions and would never be influenced by the prospect of I.P.O. fees and the stream of other fees that are typically generated from the relationship developed underwriting a public offering. (The underwriting is usually just the tip of the iceberg; a successful I.P.O. often means the lead banks get to underwrite secondary offerings and manage personal money on behalf the company’s executives.)

Mr. Kaplan acknowledged that such investments might represent a perceived conflict. “A mutual fund of a bank is only going to make the investment if they think it’s a good investment,” he said. He pointed out that investment managers were typically paid based on the performance of their funds, not on the take of the firm’s investment banking business. Still, he said, the banks “get inside information.” He added: “This asks the whole question of whether the banks should be broken up. It’s the Glass-Steagall question,” he added, referring to the 1933 act that split investment and commercial banking and was repealed in 1999.

Privately, bankers say that while there is supposed to be a clear Chinese wall and that they do not seek to influence other parts of the firms, the fact that a big bank has the ability to make an investment either itself or by introducing a prospective client to the asset management side of their business can help build a relationship with potential corporate clients. A spokesman for Morgan Stanley declined to comment on the issue.

In January, Goldman Sachs invested $450 million of its own money and about $1 billion from its overseas clients in Facebook ahead of the company’s planned I.P.O., which is expected to take place in the first half of 2012. It has long been speculated that the transaction will help Goldman’s chances of being selected to underwrite the offering.

Facebook is now valued at more than $100 billion — so Goldman and its clients appear to have made money on paper. Facebook is in the final throes of deciding on underwriters for its initial public offering, and Morgan Stanley, Goldman and JPMorgan Chase are all considered contenders for the top underwriting spot. Facebook is expected to pay more than $100 million in underwriting fees.

To be fair, in every case that I have found, banks like Morgan Stanley and Goldman properly disclosed their potential conflicts to the public. In Zynga’s prospectus, there is a section that clearly states that Morgan Stanley, through its mutual funds, had a stake in the company. Similarly, Morgan Stanley’s prospectuses for its mutual funds clearly say the firm may have other relationships with the companies that it invests in.

Nonetheless, as arm’s length as such investments may be, they raise questions among investors. “The disclosures just illustrate to me that they have bulletproofed themselves from lawsuits,” Mr. Partnoy said.

In February, JPMorgan raised a $1.2 billion fund, called the J.P. Morgan Digital Growth Fund, to invest in pre-I.P.O. shares of hot technology companies. While the idea for the fund came from the asset management division and the investment bank was not even told about it until after it became public, it was seen, perhaps unfairly, as a way for the bank to get closer to prospective corporate clients.

Representatives for Goldman Sachs and JPMorgan declined to comment.

“You could tell a positive story or you could tell a conflict story,” Mr. Kaplan said.

Article source: http://feeds.nytimes.com/click.phdo?i=9ea164430636ca22f8dbdda08c3281d2