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Analyst: Bailout spells disaster for DRAM

Posted: 17 Dec 2008 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM? bailout plan? Taiwan market? Korea memory?

The government in Taiwanand possibly Koreamay seek to bail-out their failing DRAM makers, but an analyst warned that such an action would be a "disaster" for the industry as a whole.

In Taiwan, DRAM maker Powerchip Semiconductor Corp. is pleading for a bailout from the Taiwanese government, while ProMos Technology Corp. and Nanya Technology Corp. are reportedly seeking similar measures. Powerchip's partner, Elpida Memory Inc., may end up rescuing the company via an acquisition.

In Korea, Hynix Semiconductor Corp. is seeking help from its creditors, but there are conflicting reports that the company is seeking a bail-out from the government. And in Germany, Qimonda AG could ask for help.

One analyst warned against such measures. "News continues to show the dire financial situation that most of the vendors are in, with speculation that governments will step in to support the manufacturers," said Andrew Norwood, research VP at Gartner Inc., in a report.

"Widespread government support for the industry would be a disaster: It would just prolong the current downturn rather than forcing the vendors to further reduce production or causing consolidation," he said.

Indeed, the DRAM market is terrible. "Price declines were less last week than the previous few weeks, but given that pricing is now so low for the 1Gbit density device, there cannot be much opportunity for further declines," he added.

Code red
The price of commodity DRAMs collapsed in the third quarter of the year, with contract prices down by 34 percent on the previous quarter, and the generally more volatile spot price faring even worse, down by 52 percent, according to market research group DRAMeXchange.

Most DRAM vendors are also seeing red ink. Ailing memory chipmaker Qimonda has recently announced progress in its negotiations with a potential investor. At the same time, the company said it will delay the release of its figures until mid-December.

The company denied specifying the name of the companies it is negotiating with but speculations have been rampant that Micron Technology might be interested in such a deal.

Micron recently announced some cost control measures after reporting a $1.6 billion loss for its fiscal year ended Aug. 28, but conceded that it faces ongoing challenges in a memory market plagued by oversupply and price degradation.

Micron announced a 20 percent reduction in salaries for senior executives. As predicted, the company also lowered its capital expenditure plans for fiscal 2009, saying it would spend about $1 billion to $1.3 billion, down from a previous budget of $1.5 billion to $2 billion.

Seeking to cut costs amid a deep memory downturn, troubled Hynix will slash its workforce and trim executive salaries, according to reports.

Hit by the memory downturn, Hynix recently reported revenues of 1.86 trillion won ($1.82 billion) for the quarter, up 16 percent from the previous quarter. Net loss for the quarter amounted to 711 billion won ($697.5 million). This compares a net profit of 213.5 billion won a year earlier. Hynix posted a loss of 675 billion won ($677.4 million) in Q1.

And if that's not enough, Japan's Elpida is mulling over a plan to acquire Taiwan's Powerchip.

Both DRAM suppliers are losing money amid the memory downturn, but Powerchip is in a bad position. Powerchip reported that total revenue reached NT$14.97 billion ($448.3 million) in Q3, with an after-tax net loss of NT$15.02 billion ($449.8 million).

Reports have surfaced that Powerchip may soon run out of money.

- Mark LaPedus
EE Times

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