From the 1990s to the 2000s, after the 'chicken game' played by semiconductor corporations from various countries, including the United States, Japan, Germany, South Korea, and Taiwan, the global DRAM market has maintained a decade-long oligopoly dominated by Samsung Electronics, SK Hynix, and Micron. The three companies, which hold over 90% of the total DRAM market share, have enjoyed stable high profits by flexibly adjusting their DRAM production in line with market supply and demand.
However, with the player known as China entering the game, pessimistic observations began to emerge that the peace of the memory semiconductor market may not last long. This year, China's CXMT (Changxin Memory Technologies) started supplying DDR4 outdated DRAM products to domestic corporations and is gradually expanding the scale of supply. In the third quarter earnings conference call, both Samsung Electronics and SK Hynix officially acknowledged the impact of CXMT's market entry.
Furthermore, as CXMT is expected to raise its DRAM production capacity by over 50% this year, market fears have increased. The memory chicken game ultimately pushes price competition to the extreme, increasing competitors' deficit sizes to a point of unsustainability, which is considered the only winning strategy. However, playing this chicken game against Chinese corporations, which are effectively operated like state-owned enterprises with massive government funding, is practically unfair competition.
◇ The true technological capabilities of CXMT that have yet to be revealed
The key issue is that CXMT's DRAM production capacity and technological capabilities are largely shrouded in mystery. As an unlisted corporation, CXMT does not disclose specific revenue or profits, and there are many questions regarding the official documentation on DRAM development and production roadmaps. Although it is inevitably at a disadvantage compared to the top-tier technological capabilities of Samsung Electronics and SK Hynix, the extent of the gap remains unclear.
Kim Geon-young, a researcher at Mirae Asset Securities, noted, 'There are growing concerns that CXMT's production capacity projections for next year could reach an average of 300,000 wafers per month,' adding, 'But while the wafer production capacity is increasing, the production capacity per DRAM wafer (Gb/Wafer) has been stagnant for the past four years.' The market share based on production facilities is around 14%, but it could be as low as 7% when judged by memory capacity.
An industry insider commented, 'While it is indeed necessary to be cautious of the market entry of Chinese corporations, I believe there is no need to instill excessive fear,' and emphasized, 'Whether it is outdated or new DRAM, the most important factor is securing productivity. If yield and economies of scale are not achieved, it will inevitably cost $500 to produce a $100 chip, so I do not think their market entry holds much significance.'
However, if the government pours funds into growing the industry like it did in the past with the display sector, the narrative changes. China's largest display corporation, BOE, has received government funding in all aspects from facility investment to operations and is still operating while offsetting years of deficits with subsidies. It is reported that the investment of over 10 trillion won in the 8.6-generation line is mostly covered by government subsidies.
◇ A 'monster' corporation growing with government funding… Will it work in DRAM as well?
Recently, there are opinions that China's once boundless corporate subsidies are gradually reaching their limits. National liabilities are at an extremely high level, and analyses suggest that even the central government feels pressured by this. Cho Kyung-yeop, head of the Economic Research Institute of Korea, explained, 'Especially at the local government level, a considerable amount of so-called 'shadow finance' exists that is not captured in statistics,' and added, 'The method of operating private enterprises as freely as air using government funding is also gradually reaching its limits, and current estimates suggest that China's liabilities, including shadow finance, have exceeded 400% of GDP (gross domestic product).'
Director Cho continued, 'It is hard to gauge CXMT's technological capabilities, but CXMT is also characterized as a state-owned enterprise operating under government support, and the only way for these corporations' CEOs to maintain their positions is by building more factories,' pointing out, 'Therefore, it is difficult to determine the authenticity of the messages that these companies convey,' suggesting that CXMT's technology roadmaps and investment plans might be for internal propaganda.
That said, we cannot be overly complacent. Some experts have noted that China's CXMT's DRAM technology has risen to a concerning level. Choi Jung-dong of TechInsights stated, 'CXMT has increased its wafer production volume in recent years and has especially focused on improving mass production yields,' adding, 'While I knew that the yield for (legacy DRAM) was merely around 50% early last year, it seems significantly improved this year.'