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DRAM chipmaker


(MU) - Get Micron Technology, Inc. Report

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 strugglingNo. 3 DRAM maker


afloat and also helped out powerhouse


, 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 thegrievances 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 oncompetitors. "Micron has lost money since the beginning of 2001, not justbecause of the Korean government subsidies, but because of the overall DRAMmarket downturn," says Nam Hyung Kim, senior memory analyst at iSuppli, amarket research firm.

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

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

Political Angle

There are diplomatic niceties to be considered too. "Even if Micron iscorrect on the merits, it might get trumped by the American government, whichfor some reason wants to be nice to the South Korean government, thoughmaybe the threat of a suit can get a country to back off

subsidies alittle," says Tom Smith, an equity analyst at Standard & Poor's. "You'resuddenly entering the world of global trade politics, which might run ondifferent dynamics than the memory chip industry."

Shares of Hynix and Samsung shrugged off the news. In Koreantrading, they rose 4.3% and 7.7%, respectively, in the first full day oftrading after the news was announced.

On Monday, Micron gained 55 cents, or 3.3%, amid general strength in chip stocks, closing at $17.35.

But from the financial standpoint, Bernstein analyst Adam Parker saysthe filing doesn't seem likely to create any real upside for Micron. Nordoes he buy the familiar argument that if Hynix were allowed to go bankrupt-- a likely outcome if it were cut off from government help -- Micron andother competitors would benefit.

Too Much DRAM

In reality, some other player would almost certainly sweep in to buyHynix's advanced capacity, he points out. In other words, the troubledcompany's collapse wouldn't help fix the problem of chronic DRAMoversupply.

More relevant than trade practices, he says, are Micron's fundamental troubles. Subsidies aside, it's falling behind Samsung. "Ifyou're going to be in a commodity business, you want to be the lowest-costproducer. And it doesn't feel like Micron has an advantage over Samsung inthat regard," he says, adding that Micron also trails Samsung in rollingout new products, particularly for servers.

Although Parker thinks investors can wring profits out of short-termtrades in Micron, he's gloomy on the long-term outlook, pointing to what he calls brutal pricing pressure from the perpetual DRAM glut.

Compounding matters, he notes, Micron is forced to make massive capitalexpenditures to keep up with competitors, which serves to depress itsreturn on capital. Since 1996, Micron's cumulative free cash flow is closeto negative $1 billion. "I don't recommend companies I think can't earnmoney," Parker says. And for now, Micron falls into that beleaguered group.

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