If this occurs, the industry will be an oligopoly, with Samsung (OTC:SSNLF), Hynix, and Micron (NASDAQ:MU) dominating, and just a few second tier players remaining...for now. With a handful of dominant players, there would likely be a more stable DRAM pricing environment which would indirectly benefit several players, while hurting others.
NAND producers - a firm DRAM pricing environment will give DRAM producers less motivation to convert capacity to NAND, favorable for Sandisk (SNDK) and Toshiba (OTCPK:TOSBF). Less clear is the impact on companies such as STEC (NASDAQ:STEC), Fusion-IO (NYSE:FIO), and OCZ Technology (NASDAQ:OCZ) who rely on NAND parts for their solid state drives, although it would likely be neutral.
Memory Module producers - Netlist (NASDAQ:NLST), which is repositioning itself as an IP company, still produces modules. Its products, which increase module density while reducing price become more relevant in a market in which DRAM pricing is healthy. In addition, a number of publicly traded Taiwanese suppliers stand to benefit from stable DRAM and NAND pricing.
Semiconductor packaging - ChipMOS (NASDAQ:IMOS) packages and tests DRAM, NOR flash and LCD driver-ICs, with commodity DRAM and niche/mobile DRAM accounting for approximately 30% of the total - Micron is their largest customer in this segment. Firm memory pricing could have a dramatic effect on ChipMOS' profitability. Other large semiconductor packagers, Amkor (NASDAQ:AMKR), and ASE Group (NYSE:ASX) have little or no exposure to the memory segment.
PC Manufacturers - A stronger price environment and greater supplier bargaining power poses a risk to Apple (NASDAQ:AAPL), Dell (NASDAQ:DELL) and Hewlett Packard (NYSE:HPQ). Their margins can be negatively impacted by rising commodity prices and should capacity come out of the memory market, this could show up in results over the next couple of quarters. In Apple's case, assuming firm DRAM pricing translates to firm NAND pricing, there would likley be an impact on their iPad and iPhone margins as well.
Consumers - Higher prices for components means higher prices passed on to consumers for memory upgrades and slower migrations to higher memory densities. Still, relative to the total cost of a system, the hit should be fairly modest.
We still believe it's likely that the Japanese government will bail Elpida out, nonetheless, we're positioned in some of our favorite names in the space.