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Samsung shares plummet on report that Elpida nabs Apple contract

Posted: 18 May 2012 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM? memory chips? mobile chips?

A Digitimes report saying that Apple Inc. placed a big order to buy chips from Elpida Memory Inc. to be used in Apple's iPad and iPhone devices has caused such a frenzy that Samsung Electronics' shares plummeted when the news broke out.

The report speculated that Apple is looking to cut its reliance on Samsung memory chips and turn increasingly to Japanese chipmaker Elpida.

However, one industry analyst and two sources familiar with Elpida's sales suggested the selloff in Samsung stock had been overdone, noting Elpida's current production offered limited scope in the short term to take market share from Samsung. One source said Elpida was already selling more than half of its DRAM mobile chips to Apple, an estimate supported by Merrill Lynch.

Lee Sun-tae, an analyst at NH Investment & Securities, commented: "The market is overreacting to the news. Mobile DRAM accounts for only 10 percent of Samsung's overall operating profit of around 26 trillion estimated for this year."

U.S.-based Micron Technology Corp is in talks to acquire Elpida's business as the Japanese firm tries to restructure after tough market conditions and global competition drove it into bankruptcy protection. Micron benefited from the Digitimes report as its shares rose right after the news was released. Micron shares rose 24 cents, or 4 percent, to $6.26.

Representatives for Apple and Elpida did not immediately reply to a request for comment.

If the Digitimes report proves to be true, it could mean more sales for Elpida, along with a bigger place in the Apple supply chain for Micron Technology if it acquires Elpida. Apple is the world's most valuable company.

However, if the Digitimes report isn't true, it's still likely that Micron Technology's bid for the company will be successful and improve the company's profitability and cash flow, said Vijay Rakesh, analyst at Sterne Agee.

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