IBM to Sell Chips to Hyundai of South Korea : Technology: The move indicates that the computer maker may play a more active role in the mass-market business dominated by the Japanese.

IBM, which has traditionally produced computer chips only for internal use, will soon begin supplying advanced memory chips to Hyundai Electronics Industries Co., a South Korean conglomerate.

The move indicates that International Business Machines Corp., the world’s largest computer company, may begin playing a more active role in the mass-market chip business, which is dominated by Japanese producers.

IBM spokesman Paul Bergevin denied that the sale to Hyundai represented a shift in policy, however.

“We have been selling very modest quantities of chips on a contract basis to respond to occasional oversupply, but we have no intention of being anything other than a captive supplier of semiconductors,” Bergevin said.

Still, analysts pointed out that with the steadily rising cost of chip production facilities, IBM and other companies were especially eager to keep plants running at capacity.

“It’s probably a limited and carefully designed expansion (of its chip operations) to allow them to fully load their factories,” said Dan Klesken, an analyst with Prudential Securities.

The Hyundai deal calls for IBM to supply several thousand 4-megabit dynamic random-access memory chips a month from one of its factories in Japan.

Hyundai will sell the chips under its own brand name, said Park Chong Sup, senior vice president of semiconductor marketing at Hyundai Electronics.

“We are testing the water in a small way to make sure the market is there,” Park said. Although Hyundai manufactures its own 4-megabit DRAMs, the IBM chips are structured differently and will supplement Hyundai’s lineup, Park said.

Analysts said the move to sell semiconductors fits neatly into a broader strategy that IBM has revealed during the past year.

The company has already begun selling its disk drives and minicomputers for resale under other brand names, for example.

“What they need now is volume growth,” said Boris M. Petersik, securities analyst at Barclays de Zoete Wedd Securities (Japan) Ltd. “They aren’t getting the sales in (computer) mainframes.”

IBM plans to jointly manufacture 16-megabit DRAMS, the next generation memory chip, together with Siemens AG of Germany.

Chips manufactured by that joint venture are also expected to be sold on the merchant market.

With semiconductor production estimated at about $3.7 billion annually, IBM ranks among the top five chip makers, and it had consistently been a leader in chip technology.

Academics have argued that only an integrated manufacturer with the scale and breadth of products of an IBM or AT&T; has the strength and staying power to compete with Japanese conglomerates in the capital-intensive chip business.

But American Telephone & Telegraph Co.’s efforts to move beyond making chips for internal use and compete in the world market have not been successful.

And analysts pointed out that this is not a good time to get into the memory chip business because demand is soft and prices are low.

IBM spokesman Bergevin said the company’s internal production accounted for only about half its consumption, and thus it didn’t have a lot of extra capacity for outside sales.

Although fear of antitrust laws once discouraged IBM from selling semiconductors on the open market, such obstacles have long since been removed.

The decision of whether to sell semiconductors on the open market has been up to IBM for some years.

Helm reported from Tokyo, and Weber reported from San Francisco.