China hands Asian memory makers massive bargaining chip

Asian chipmakers are set to cash in on a major realignment in the volatile industry which is tilting the power balance their way at the expense of gadget makers such as Apple, after years of cautious investment kept supply in check.

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 such as Huawei Technologies.

At the high end of the spectrum, demand for gadgets armed with ever greater memory capacity will fuel 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 (DRAM) and NAND memory chips have started to rise, and chipmakers are enjoying the most bargaining power they have had in years.

“Chipmakers 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.

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