Rumor Dampens Samsung Electronics Stocks

Staff Reporter

For a company the size of Samsung Electronics, even a rumor can cost it dearly, as was the case Thursday when it was directly hit due to market talks over possible problems with its chips.

Shares of the world's biggest manufacturer of memory chips closed down 3.41 percent at 680,000 won on the Korea Stock Exchange (KRX).

"Speculation over its chips dragged down Samsung shares. I couldn't find any concrete reasons in explaining today's poor performance except for such worries," an analyst at Daewoo Securities said.

Earlier in the day, Taiwan's DigiTimes reported on its English Web site that Samsung Electronics had a large batch of its dynamic random access memory (DRAM) chips rejected by customers.

It added Samsung is also said to have encountered problems in production using a less-advanced 68-nanometer chip processing technology, with sources indicating that PC makers had recently rejected a batch of 80 million 1Gb-equivalent chips.

Samsung responded that the report was "groundless" and sources say the company has engaged in detailed internal talks to take legal measures against the Taiwanese company.

Industry experts say the South Korean chip giant suffered some $6 million in losses last month for similar reasons, while the claims raised by the media are "exaggerated."

"Some market players are worried that a batch of possibly defective DRAM chips will be dumped on the spot market and aggravate weak pricing further, however, that wouldn't impact Samsung too much, if realized, considering the increasing sales portion to contract-based clients," the analyst added.

Global DRAM makers such as Samsung and Hynix Semiconductor are betting the current supply and demand imbalance is likely to be normalized in the second half of this year thanks to spending cuts and the faster technology migration to more advanced chips.

Samsung's chip head Kwon Oh-hyun earlier told The Korea Times that the global chip industry will see signs of turnaround in the latter half, though a major recovery in the industry is unlikely this year considering weakening chip prices.

Separately, Samsung said it struck a deal with Siltronic to form a joint venture to produce 12-inch or 300-millimeter wafers used to make chips. The $1 billion new plant in Singapore will have a monthly production capacity of 300,000 wafers by 2010 and is intended to secure a stable supply for Samsung.