Micron's Complaint Doesn't Address the Real Problem

DRAM chipmaker Micron is complaining that it's not just competing against two Korean rivals in a tough market, but their government as well. Micron filed a complaint with U.S. and international trade agencies last week that Korean competitors have unfairly gained from government subsidies.

At issue are the friendly deals that have kept struggling No. 3 DRAM maker Hynix afloat and also helped out powerhouse Samsung, which claims the leading position in the DRAM market. Micron, which ranks second in market share, gripes that its competitors have benefited from loan write-offs, debt-for-equity swaps and favorable debt refinancings, courtesy of the Korean government.

But while Micron has some legitimate complaints, analysts say the grievances are mostly old news, and they're a sideshow to Micron's more intractable business problem: waning demand for DRAM.

In short, it won't be easy to pin blame for its troubles on competitors. "Micron has lost money since the beginning of 2001, not just because of the Korean government subsidies, but because of the overall DRAM market downturn," says Nam Hyung Kim, senior memory analyst at iSuppli, a market research firm.

"It will take at least a year to investigate this issue, and in the DRAM industry, one year is a very long time," he adds. "Some people think this is like a joke, only good for lawyers."

Another complication in pressing the case: Technically speaking, Korean chipmakers haven't taken handouts from the government. Instead, deals have been offered by their creditor banks -- the major shareholders of which are the Korean government, Kim notes. Though it's a picky distinction, it could be relevant from a legal standpoint.

Political Angle

There are diplomatic niceties to be considered too. "Even if Micron is correct on the merits, it might get trumped by the American government, which for some reason wants to be nice to the South Korean government, though maybe the threat of a suit can get a country to back off [subsidies] a little," says Tom Smith, an equity analyst at Standard & Poor's. "You're suddenly entering the world of global trade politics, which might run on different dynamics than the memory chip industry."

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