Macronix struggles in the face of hostile takeover

A boardroom showdown this Friday will finally decide on the fate of Macronix International against Taiwan's largest DRAM maker, Powerchip Semiconductor Corp., which has snapped up enough shares in Macronix to make a bid for a handful of board seats.

Still standing defiant is Macronix chief executive Miin Wu, who has finally steered the company back from the brink of ruin after years of losses. Having suffered huge losses, the once a high-flyer of the Taiwan tech industry has recently been written off as a has-been maker of mask ROM.

Bouncing back
The fight isn't just about mask ROM, even though Macronix is riding a boom in mask ROM demand because it supplies Nintendo's Wii game console. The struggling company has spent the last few years developing advanced technologies for the long run, such as phase-change RAM and next-generation NAND flash, while also looking for more immediate return by pushing the multilevel-cell limits of ROM to make it more cost-competitive.

The two-track approach helped the company return to profitability last year, ticking off a few quarters in the black and a surprisingly good Q1 this year, posting a profit of about $17 million. Meanwhile, the company has scored a couple of high-profile R&D partnerships with the likes of IBM Corp. and Qimonda.

Yet that may not be enough to save Wu's job. Ultimately, minority shareholders will decide, since they control the swing vote at Macronix. In order to sway public opinion, Wu, usually a behind-the-scenes operator, has ratcheted up his profile recently and talked frankly about the company's problems.

"Three or four years ago, the company was in very bad shape. People bailed out. My products were not competitive. We were losing money," he said. "We have been able to turn things around?that's already a miracle. But not only have we done that; now we have a good margin in a very low-priced market."

Strategic bid
Macronix management owns about 4.8 percent of the company. Powerchip owns a 5 percent stake in Macronix and, through subsidiaries, is rumored to own another 4 percent. With that, it is making an unusual hostile bid for eight out of 15 board seats. If the ploy is successful, it would be much cheaper than making an outright bid to take over the company.

There are myriad reasons for Powerchip's interest in Macronix, not the least of which is technology. Because of its heavy presence in ROM, Macronix is focusing on moving from 2bit/cell ROM to 4bit/cell this year in an offering it calls XtraROM. That should help it hold on to a long-term relationship with Nintendo.

It also plans to continue its efforts in low-density NOR, up to about 128Mbit or 256Mbit at 1.8V. However, the majority of its resources will soon be dedicated to making a play in NAND flash. Wu believes the company's BE-Sonos technology will dismantle the barriers expected to confront today's floating-gate technology at the 45nm node.

DRAM has been the mainstay at Powerchip, but prices have plummeted more than 70 percent this year for mainstream chips (512Mbit DDR2). Powerchip is continuing its aggressive expansion in DRAM, including a $13.9 billion joint venture with Japan's Elpida, but it is also looking to increase its NAND production.

However, Powerchip's current technology partner, Renesas Technology Corp., is pulling out of the NAND business. That means Powerchip needs to shoulder more of the R&D burden for next-generation flash that moves beyond the floating-gate architecture. Macronix is attractive because it has been exploring this problem for years.

Last stand
Now that its approach is gaining merit, Wu finds himself in a surprising position?having to fight both a technology battle as well as a bitter proxy war. He insists that spending four years to turn the company around wasn't too long based on the deep-rooted problems he found. "I think four years is very short," he said.

Wu isn't saying much about Powerchip, preferring to steer conversations toward what his company is doing. Cajoled a little, he said: "I don't believe they are interested in cooperating with me. They are interested in taking our things for their own use by investing a little money. I don't think that's fair."

Wu has vowed to resign if he loses control.

- Mike Clendenin
EE Times