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See the best of Reuters photography. See more | Photo caption Raging wildfires Raging fires strike Colorado and Utah. Slideshow Gay Pride parades Revelers celebrate Gay Pride month with parades all around the world. Slideshow With Micron buy, less boom and bust in DRAM chips Tweet Share this Email Print Related News Japan's Renesas seeks to cut 12 percent of workforce 7:55am EDT Deals of the day -- mergers and acquisitions Mon, Jul 2 2012 Micron to buy Japanese chip maker Elpida Mon, Jul 2 2012 Wall Street suffers worst loss in three weeks Thu, Jun 21 2012 Analysis: Smart logic: Samsung chips away at Intel lead Thu, Jun 21 2012 Analysis & Opinion Killing them softly OPEC can’t afford to give residents cheap oil Related Topics Tech » Deals » Global Deals Review: 2011 Q3 » Global Deals Review: 2011 Q2 » Global Deals Review » Inflows Outflows » Media » Japan » Elpida chips are seen at an electronic store in Tokyo's Akihabara district April 24, 2012. Credit: Reuters/Toru Hanai By Miyoung Kim and Clare Jim SEOUL/TAIPEI | Tue Jul 3, 2012 7:28am EDT SEOUL/TAIPEI (Reuters) - Micron Technology Inc's acquisition of Japan's Elpida Memory puts 90 percent of the $30 billion global memory chip industry in the hands of three firms, and may end a bruising era of extreme price volatility that has forced smaller players out of business. Market leader Samsung Electronics Co, Micron and SK Hynix - the three big dynamic randomaccess memory (DRAM) chip manufacturers - will have more control over production capacity and investment in an industry set to grow by almost a third by 2016. The global market for DRAM chips, used mainly in computers, trebled in the past decade, but a highly cyclical pattern of boom and bust saw off financially strapped chipmakers, including most of Japan's manufacturers and Germany's Qimonda in 2009. Making DRAM chips requires huge investment outlays in technology and plant, but those big capital investments lead to overcapacity and lower prices - which have tended to recover only when there's an industry shake-down. The industry has a chequered history of cartel probes when prices have gone up, and allegations of dumping and government subsidies when prices have fallen. "The DRAM industry is heading towards an oligopolistic market. The emergence of three major DRAM players will help DRAM chip prices gradually stabilize, bidding farewell to the price-slashing competition of the past," said Taiwanese technology research company Trendforce. Boise, Idaho-based Micron is buying Apple supplier Elpida, Japan's biggest manufacturing bankruptcy, in a deal worth around $2.5 billion, and will take a 24 percent stake in Taiwan-based Rexchip Electronics Corp, on top of the 65 percent already owned by Elpida. "The deal will reduce price volatility as Micron will have tighter control over capacity expansion and investment plans as it needs to integrate Elpida and Rexchip," said Song Myung-sub, an analyst at HI Investment & Securities in Seoul. "But we had similar consolidations before and hoped it would significantly reduce volatility ... but volatility is still there to a large extent." CONSOLIDATOR MICRON Micron, which has posted a net loss in the four latest quarters, has been a key driver of consolidation, buying Toshiba's U.S. DRAM plant in 2001 and Inotera from Qimonda in 2008. In between, it tried, unsuccessfully, to buy Hynix for $3.4 billion. "Micron has not been efficient at converting past acquisitions to its own processes, so we will watch to see if the Elpida change is any different ... Hopefully Micron can align the DRAM processes better than in their last two corporate acquisitions," said research firm Objective Analysis. The research firm was also less sure about the prospect for price stability. "Prices will continue to behave as they always have, even when the market had 23 suppliers," it said. "There's no reason that a capital intensive commodity that is supplied by more than one vendor should not undergo important price collapses any time there's an over-supply, since suppliers are highly motivated to run production capacity at its maximum output, and this forces them to lower prices to find markets for overproduced chips." Chip gluts in recent years have been triggered by sluggish growth in personal computer sales and improvements in productivity as a result of the massive capital investment, driving chip prices down to near production costs and forcing firms including SK Hynix and Micron to report losses. Chipmakers are now betting that booming demand for mobile devices such as tablet PCs and smartphones will drive DRAM sales and make up for a weakening PC industry. "Due to the emergence of an oligopoly, spot (DRAM chip) prices will not fluctuate as much as in the past when there were many smaller players in the market. In the long run, they will go down as technology improves," said Brady Wang, principal research analyst at Gartner in Taipei. LITTLE LEAGUE Behind the big three come Taiwan's second-tier DRAM makers, which have thrived on low prices, but may now have to consolidate to survive. Nanya Technology Corp, owned by the giant Formosa petrochemicals group, ProMOS Technology and Winbond Electronics Corp have a combined share of less than 10 percent of the global market, and have racked up combined losses of $7 billion since 2007. Hopes that a U.S.-Japan-Taiwan alliance could rescue Taiwan's struggling DRAM makers - with Taiwan offering Micron manufacturing expertise while benefiting from the U.S. firm's NAND flash memory technology - may prove short-lived. "Micron is now getting Rexchip, plus the 60 percent it has raised in Inotera at the beginning of the year. It'll have enough capacity and doesn't need Nanya," said KGI Securities analyst Ben Yeh. Micron and Nanya together run the Inotera joint venture. Powerchip, which has partnered Elpida in the Rexchip venture, could emerge the biggest winner among the Taiwanese firms as it should gain technical support from Micron and have more flexibility to operate in logic chips and the foundry business, said Yeh. (Editing by Ian Geoghegan) Tech Deals Global Deals Review: 2011 Q3 Global Deals Review: 2011 Q2 Global Deals Review Inflows Outflows Media Japan Related Quotes and News Company Price Related News Tweet this Link this Share this Digg this Email Reprints We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/ Comments (0) Be the first to comment on reuters.com. Add yours using the box above. 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