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DRAM vendors struggle to overcome 'insolvency'

Posted: 10 Nov 2008 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM? crisis? shakeout? memory?

A DRAM shakeout continues amid the ongoing economic downturn and potential technology setbacks in the sector.

Some DRAM vendors face possible extinction. Qimonda AG is heading toward "insolvency," according to one analyst. Elpida, Hynix and Micron are struggling and losing money, while DRAM suppliers like Powerchip, ProMOS and others may not survive the storm, according to some analysts.

Supported by deep pockets, analysts said Nanya Technology Corp. has a better chance for survival. The other DRAM vendors in Taiwan are too small and lack resources. Sadly, memory giant Samsung Electronics Co. Ltd is perhaps the only supplier that is making money in DRAMs.

For some time, there has been a glut and horrific downturn in DRAMs. Aside from oversupply, the sector is now getting hardly hit by the economic slowdown.

"Our bottom-up models suggest NAND and DRAM will remain in oversupply through calendar 2009 as capacity cuts are offset by weak demand," said Daniel Berenbaum, analyst, Cowen and Co. LLC, in a report. "We also harbor secular concerns over DRAM demand, as growth in content per PC slows down and we move closer to the usable limits of 32bit OS."

Some analysts fear that DRAMs could hit the capacity ceiling in PCs. Microsoft Inc.'s 32bit OS enables DRAMs to scale up to 4Gbyte in typical PC systems. Today's high-end PCs are configured with 2Gbyte to 3Gbyte of DRAM, leaving little room to scale in the future.

The search for true 64bit OS
PC makers and DRAM vendors are waiting for a true 64bit OS. But that technology may not come for several years, which portends a glut of DRAM capacity in the future.

On top of that, DRAM makers are struggling to develop devices beyond 50nm because of scaling issues, especially with the shrinking capacitor. At present, many are shipping sub-70nm products.

Needless to say, it will take more money and technology to survive the turmoil. Some will simply not make it, especially Qimonda.

"Qimonda is the high-cost supplier in an oversupplied and commoditized industry," said Berenbaum. "A $400-million cash infusion from Micron's purchase of Qimonda's stake in Inotera (manufacturing JV with Nanya in Taiwan) will help keep the lights on, but Qimonda has now sacrificed scale, and there is no escaping its weak position as a high-cost supplier in an industry with no real technology differentiation," he added.

As reported, Micron signed a definitive agreement to buy Qimonda's 35.6 percent ownership stake in Taiwan DRAM venture Inotera Memories Inc. for $400 million in cash. For some time, Nanya and Qimonda owned the joint DRAM manufacturing venture in Taiwan, known as Inotera. Now, Micron and Nanya control the venture.

Qimonda's misfortune
In any case, Qimonda is in trouble. "We still see insolvency as a very real possibility, but with Qimonda stock down 95 percent since June, and enterprise value now effectively zero, we cannot exclude several potential positives that could limit further downside," Berenbaum said.

"Parent Infineon could be willing to essentially give away its 77-percent stake to investors," he said. "Infineon could buy back the remaining shares it doesn't own at a small premium just so it can shut down the business and remove the 'Qimonda overhang' on its own stock; or the German government might forgive any clawbacks on prior incentive grants if the Dresden fab is shut down, which could make Qimonda seem more attractive to a potential buyer."

Who else may not survive the storm? Some analysts point the fingers at Powerchip Semiconductor Corp., which is losing large amounts of money.

Over time, some speculate that Japan's Elpida Memory Inc. will acquire Powerchip. The two companies are close partners. In 2006, Powerchip and Elpida signed an deal to establish Rexchip, a DRAM JV in Taiwan.

Elpida is also struggling and is moving into new markets to offset the losses in DRAMs. It has moved into the foundry and LCD driver businesses.

ProMOS Technologies Inc. could also be the subject of a takeover in time. Some speculate that Hynix Semiconductor Inc. could acquire ProMOS.

The two companies are no strangers. Hynix recently bought an 8 percent to 10 percent stake in ProMOS through private placement to strengthen their long-term cooperation. Hynix also licensed its 50nm, stack-capacitor process technology to ProMOS. ProMOS will offer capacity from its 300mm fab to Hynix.

Hynix's forecast
Hynix itself may or may not survive the storm as its future remains in doubt. Hynix has reported consecutive losses, including a 1.65 trillion won ($1.19 billion) net loss for Q3.

The Korea Exchange Bank (KEB), the largest shareholder of Hynix, recently has plans to sell its combined 36 percent stake that it holds with eight other companies in the chipmaker.

Like Hynix, Micron is struggling. Micron recently cut its workforce by about 15 percent and reduced the output of its NAND flash JV with Intel Corp.

Micron announced cost control measures after reporting a $1.6 billion loss for its fiscal year ended Aug. 28, including a 20-percent reduction in salaries for senior executives and lowered budget for 2009 capital spending.

Even mighty Samsung is feeling the heat. Hit hard by the memory downturn, Samsung recently posted a profit of 1.22 trillion won ($856.3 million) in the quarter, down 43 percent from the earlier period and down 44 percent from a year ago.

- Mark LaPedus
EE Times





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