updated 11/22/2005 9:27:01 AM ET 2005-11-22T14:27:01

Shares in Samsung, Toshiba and Hynix Semiconductor — the world’s three largest makers of flash-memory chips — plunged Tuesday after two U.S. companies said they were joining forces to challenge their dominance.

Investors sold off the shares after Intel Corp., the world’s largest semiconductor maker, and Micron Technology Inc. said Monday they had agreed to form a joint venture, IM Flash Technologies LLC, to produce NAND flash memory chips for consumer electronics.

In Seoul, Samsung Electronics Co. shares fell 5 percent to 590,000 won ($568), while Hynix Semiconductor Inc. slid 8.3 percent to 21,450 won ($21), helping push the Korea Composite Stock Price Index down 1.9 percent. In Tokyo, Toshiba Corp., the most-traded stock on the Tokyo Stock Exchange’s First Section, plunged 8.8 percent to 613 yen ($5.10).

The three Asian technology companies collectively control 86 percent of the market for flash memory. As of the third quarter of this year, Samsung held a 50.2 percent share, Toshiba controlled 22.8 percent, while Hynix had 13.2 percent, according to California-based market research firm iSuppli Corp.

The chips are used in Apple Computer Inc.’s hot-selling iPod Nano, other music players, digital cameras, storage gadgets and handheld computers.

The new joint company has already secured a $500 million deal to supply chips to Cupertino, Calif.-based Apple, which announced it plans to prepay a total of $1.25 billion for flash memory components during the next three months.

Apple also said Monday it had agreed to buy memory chips from Samsung, Hynix and Toshiba, but the fresh deal with IM Flash Technologies already highlighted the intensifying competition these Asian chipmakers would face.

Also, traders may have used the news as an excuse to take profits on the companies, which have surged recently. Samsung, for example, hit a 52-week high last week.

Traders said the selling of the Korean shares was led by foreign investors.

Samsung’s percentage drop was the highest since June 11, 2004, when it fell 6.7 percent, while Hynix’s fall was the steepest since June 14 last year, when it dropped 9.2 percent.

Analysts were divided on what the new joint venture means for the flash memory industry.

“The NAND flash market is growing over 200 percent every year because of diversification of applications,” said Minhee Lee, senior analyst at CJ Investment & Securities in Seoul. “In the long term, the impact of the new entrants will not be big.”

Nam Hyung Kim, principal memory analyst at iSuppli, said the effects would ultimately be negative as more manufacturers will mean a supply glut.

“More supply means each supplier’s share of industry profits will decrease,” Kim said. “It will result in oversupply eventually as well.”

Regarding its new contract with Apple, Samsung said Tuesday it will receive an initial payment of $500 million from Apple, while Hynix said it will receive an initial payment of $250 million within three months. Those agreements will run through 2010, the South Korean companies said in separate disclosures to the Financial Supervisory Service.

Samsung and Hynix didn’t provide further details of the agreements. Last week, the companies disclosed that they were in talks with Apple to supply memory chips after the Korea Exchange requested additional information.

Copyright 2005 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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