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Ruthless DRAM market leaves Elpida struggling

Posted: 05 Jan 2012 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM market? merger? oligopolistic market?

Elpida Memory Inc.'s financial troubles have been revealed by the end of last year. Speculations about the company seeking bailout from the Japanese government and of Toshiba Corp.'s taking over emerged. Should the rumors turn out to be true, the DRAM down season may have claimed its very first victim.

Elpida's cash is down to about $1.429 billion, but the company's total debt amounts to nearly $6.26 billion, 60 percent of the company's total assets. About $486 million of Elpida's total debt comes from the Japanese government's recapitalization program and must be repaid by the end of April this year. In the face of this pressing deadline, Elpida has no choice but to look elsewhere for funds, which has fueled industry speculation of a merger or acquisition.

Amidst numerous conjectures about Elpida's possible integration, the Japanese government plays an important role. In addition to possibly extending repayment of Elpida's loan, the government is actively involved in integration prospects. Besides potential government intervention, there is also a chance that Elpida's longtime strategic partners Kingston and Powertech Technology (PTI) will offer assistance. Since 2H11, there has been frequent news of Kingston purchasing Elpida chips at discounted prices, hoping to help Elpida make it through the DRAM price downturn by somehow decreasing the company's losses.

Market rumors hinted that Nanya was willing to cooperate with Elpida. This rumor was immediately and firmly denied by both parties, and upon analysis it appears that there is little truth to it. From Nanya's perspective, their current debt ratio is a high 96.8 percent. Although the company has received continuous financial support from Formosa Plastics, at this point it is highly unlikely Nanya would leave partner Micron to cooperate with Elpida. Furthermore, in terms of cost considerations, neither Elpida nor Nanya is in a position to endure the technology integration period that would be necessary after merging. Lastly, as Nanya and Elpida have filed patent infringement lawsuits against each other, there is little possibility of a strategic alliance between them.

As Elpida's options are limited when it comes to integration partners, the Japanese government is eager to help negotiate a partnership between Toshiba and Elpida, in hopes of developing an operational strategy that will further reduce the proportion of commodity DRAM wafer starts. Furthermore, the government also hopes for integration of DRAM and NAND product lines, in order to target the smartphone and tablet PC markets as major Korean makers have done. Furthermore, there is also the possibility of U.S.-Japan cooperation, with the goal of going up against Korean makers. Such an alliance would not only enable makers to solidify DRAM and NAND product lines and break into the mobile DRAM market, but Elpida and Micron's combined wafer start capacity would be 328K starts per month, surpassing that of number two Korean maker Hynix. From an economic perspective, teaming up would help keep costs down.

DRAM wafer capacity

The monthly wafer start capacities of three major DRAM companies.

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