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IMF aid could kill Micron, CEO says

CEO Steve Appleton will tell Congress that unconditional International Monetary Fund aid for South Korea could put his company out of business.

Micron Technology (MU) CEO Steve Appleton will say to Congress that unconditional International Monetary Fund (IMF) aid for South Korea could put his semiconductor company out of business.

Appleton will tell the House Banking committee that heavily indebted South Korean memory chip manufacturers have flooded the market with below-cost goods, grabbing share at Micron's expense. The committee is hearing testimony about increased U.S. contributions to the IMF.

"Non-commercial" bank loans have financed their loss-making expansion, and IMF monies that shore up cash-strapped Korean banks will insulate the banks from risky practices while penalizing U.S. companies unable to obtain such credit, according to the CEO.

"If the US participates in furthering the IMF bailout, Korea must be held accountable for the use of these funds. Left unchecked, we may lose the last remaining U.S. merchant producer making DRAMs in this country," Appleton said in a prepared statement echoing the call for mandatory banking reform to accompany Korean relief.

DRAMs, or dynamic random access memory chips, fell precipitously throughout 1996 and 1997 because of oversupply. Last December, they were hovering just above $2, well below the $4 cost of manufacture, according to International Data Corporation.

Spot prices have recovered somewhat this month, in part because of reports that Korean manufacturers have had to pay cash for production materials, as bank letters of credit are not being honored. Japanese manufacturers have also said they will accelerate their transition from loss-making 16-megabit chips to next-generation 64-megabit chips, and many in the industry believe Micron will bring fresh dumping charges against South Korea, prompting the market to anticipate decreasing volume and perhaps a tariff.

PC manufacturers normally buy their chips in volume in the contract market, but spot prices are viewed as an indicator of memory's direction. That spot prices of about $3.50 are currently higher than contract prices--an unusual state--suggests that 16-megabit prices may have bottomed out.

In its December report of first quarter fiscal 1998 results, Micron reported a 25 percent decrease in the average selling price (ASP) per megabit of its memory chips compared to fourth quarter 1997. The decline followed a 75 percent decrease for fiscal 1997, according to the Boise, Idaho, company.

Micron has several times brought dumping complaints against Asian chipmakers. In the DRAM market, South Korea's Hyundai and LG Semicom have been subject to antidumping measures put in place by the Commerce Department following Micron's 1993 complaint.

Interestingly, Micron itself has been accused of producing more chips than the market can absorb.

Appleton is scheduled to appear in Washington on Tuesday, the second day of the Banking Committee's hearings. He has previously testified before the House Ways and Means and the Senate Finance committees on the same topic, the industry practices of foreign manufacturers.

Before House Banking is H.R. 3114, the International Monetary Fund Reform and Authorization Act of 1998, introduced by chair Jim Leach (R-Iowa). Treasury Secretary Robert Rubin, Defense Secretary William Cohen, and Federal Reserve Board Chairman Alan Greenspan headline tomorrow's lineup.