The dream is gone! Sounds like a Pink Floyd song! Oh dear, the floundering industry here in Taiwan seemed to be putting their hopes on a government led initiative to consolidate the industry here in Taiwan. In Taiwan Government to Invest in DRAM Industry we gave some insight into what the government plans to do with the industry but today, Bloomberg has more:
Taiwan’s economic affairs minister ruled out a state-led merger of its computer-memory chipmakers, signaling the government is scaling back its plans to reorganize the $23.6 billion industry.
“It’s too complicated and difficult to have an outright merger,” Economic Affairs Minister Yiin Chii-ming told reporters in Taipei yesterday. Newly formed Taiwan Memory Co. “will focus on obtaining technologies and then look for existing plants in Taiwan for manufacturing needs.”
Yiin joins John Hsuan, appointed by the state to oversee the creation of Taiwan Memory, in raising doubts this week about the scale of the island’s plans to revive its unprofitable semiconductor industry. Since last year, the economic affairs ministry has said Taiwan may push for consolidation, fueling speculation that the six domestic chipmakers would merge in a so-called “Big Bang.”
So then, what is Taiwan Memory all about. Well according to Bloomberg:
Hsuan, an honorary vice chairman at United Microelectronics Corp., was named last week by Taiwan’s government to create a domestic chipmaker that could challenge global industry leader Samsung Electronics Co.
The island’s six computer-memory chipmakers, saddled with about $11 billion of debt, should consolidate with Taiwan Memory because having more than one producer “makes no economic sense,” according to Morgan Stanley analysts Frank Wang and Jerry Su. The company should also merge with or invest in Elpida Memory Inc. to access the Japanese chipmaker’s technology and collaborate with Boise, Idaho-based Micron Technology Inc., they wrote in a March 10 report.
Instead of pursuing mergers and building its own multi- billion-dollar semiconductor factories, Taiwan Memory may acquire manufacturing plants from the domestic chipmakers, Minister Yiin said yesterday.
Mmm. Interesting. There have been rumours flying around about industry consolidation for sometime but now it seems Taiwan Memory will be added as a competitor and the industry will become even more fragmented. Is this good for Taiwan's memory industry? I have absolutely no idea. On the one hand they will buy assets from struggling companies to help them alleviate their debt but then the existence of these companies will be jeopordized especially, if as speculated, Taiwan Memory imports Elpida's technology. Some of the six memory companies in Taiwan will collapse I fear. However, with the development of Taiwan memory, at least there will be some place for the expertise to go. These deals are becoming more interesting and I will keep you up to date (and do my best to avoid speculation!).
But for now: "I cannot put my finger on it now. The child is grown, the dream is gone. I have become comfortably numb." So says Pink Floyd!
Oh yes, as always, I look forward to your comments!
Bloomberg: Taiwan Rules Out Chip Mergers in Industry Reorganization Plan
3 comments:
The dream is gone is right.
Well, I believe the Chinese that was used is they felt like 被耍了 ie they felt like they got played.
I'm scared. The government isn't moving fast enough, and it doesn't look like it knows what it's doing. If it had a plan, why make it sound like a different plan, delay a few months, then announce something else? If there was crying out and a debate about why merging the companies would have been a bad plan, I'm not against changing your mind, but what's the basis of this decision, and what was the basis of making it look like it was going to force mergers?
What this looks like to me, is the government doesn't want to be caught holding debt of bankrupt companies or overpaying for the worst of the lot, and prefers buying up the leftover assets in a firesale. Well, the problem is that the debt is financed in large part by government run banks and you will have to absorb losses if someone goes bankrupt anyways.
If you are holding the debt and the memory manufacturer would be bankrupt if you didn't buy it, then you have them "by the balls" anyways, and you can wipe out equity at will.
I'm on the side watching along with you, but the industry reaction has been poor, and Powerchip looks like is going to try to look for a deal with Elpida on its own.
My recommendation to the government: stop acting like prideful fools and go hire an investment bank or two or three. They don't have a good name these days, but this is exactly the problem that they have expertise in, there are billions in play, and you've shown yourself to be clueless. Some tech industry founder-CEO is not going to know how to structure a financial deal this big, and even worse, certainly not some career bureaucrat.
Hi Anon,
Yes you make many valuable points. Right now many things in Taiwan seem rudderless as people are being very reactionary to the current temporal market situation and one feels only in a few cases are companies developing a long term sustainable strategy and developing post financial crisis plans.
It is also shocking the way the government has responded to the memory industry. The memory industry crisis as you know predates the financial crisis (well before the financial crisis became overtly evident) and yet they have not been able in these many years to make a plan that can help the companies out.
I know the President changed but the executive Yuan has mostly stayed the same and they have had time to think about where it is going. They didn't.
Anyway I am rooting for some of these companies to pull through but I would surprise if all of them manage it. I think the analysts quoted in the article were correct when they said six DRAM companies in Taiwan were too many.
Too be honest however, in these circumstances it might be better in the short term to let some of these companies go bankrupt. It would enable the court to downsize the debt and possible help them come out with a more competitive capital structure. Of course the banks, who are the major debt holders, would be hammered. But, if as you say the government own most of the debt holding banks, they wouldn't want to burn US$11 billion.
All you and I can do is stand on the sidelines and watch the evolution.
Take care and thanks for your insightful comments. Always appreciated.
Paul.
P.S. If you feel like hooking up for a beer sometime in Taipei, send me an email at durbanbay(at)yahoo.com, it might be fun.
Busy this week, but that does sound like it could be fun.
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