Taiwan Memory Restructures

In Taiwan Government to Invest in DRAM Industry we observed the Taiwanese gvt. was looking to invest in and consolidate the on-island memory industry to give it a more competitive structure and to help it obtain some of its own IP so marginal costs could be reduced through eliminating the licensing of patented technologies. In The Dream is Gone: No Gvt. Backed Merger for Taiwanese Memory Industry we quoted a Bloomberg article that suggested there would be no gvt. backed merger of the on-island DRAM industry and that Taiwan Memory would be an independent company. Today Taiwan News has an article on the restructuring plan of Taiwan Memory. According to Taiwan News:

Newly-established Taiwan Memory Co. (TMC) has officially filed its business plan with the Ministry of Economic Affairs (MOEA) to participate in a government project to restructure the DRAM industry, Vice Minister Hwang Jung-chiou said Tuesday.

The MOEA first put forth in March the idea of setting up the TMC as part of its efforts to consolidate Taiwan's ailing dynamic random access memory, or DRAM, industry. The company has recently completed its establishment, with registered capital of NT$500,000 (US$15,244).

Under a project unveiled in July, the government will allocate a maximum of NT$30 billion to support one or two local DRAM companies to compete with their foreign counterparts, particularly those in South Korea.

Companies interested in obtaining the government funding should apply with the MOEA within three months, after which the ministry will review their qualifications.

"TMC is a bellwether, and we hope it will pass the screening, " Huang said.

Huang, however, would not disclose the amount of investment requested by TMC.

To qualify for the funding, the applicants should have the ability to efficiently acquire overseas intellectual property and technology usage rights, as well as fair and balanced research and development records from both domestic firms and overseas partners, according to requirements set by the MOEA.

The MOEA also demands that the international collaboration must provide adequate training of local talent and that the re-structuring plan must aim to improve existing corporate structures and broker possible mergers and acquisitions.

TMC, which aims to develop its own technologies in collaboration with Japan-based Elpida Memory Inc., is so far the only company that has filed its business plan to bid for the funding.

MOEA officials said they believe the Formosa Plastics Group will also file an application.

Two of Formosa's affiliates -- Nanya Technology Corp. and Inotera Memories Inc. -- have maintained a partnership with U.S.-based Micron Technology Inc., a leading DRAM technology provider.

TMC originally hoped to cooperate with both Elpida and Micron, but Micron turned down the proposal in April and decided instead to further reinforce its long-term cooperation with Nanya and Inotera.

Nanya and Inotera executives have urged the government to give the Micro-Nanya-Inotera alliance the same level of support it would have given to a Micron-TMC venture.

Oversupply in the memory industry dates back a few years now to the first proposed launch of Windows Vista and the memory makers have been struggling ever since. Samsung, Elpida and Micron all have their own patented technologies but the big DRAM makers in Taiwan are manufacturers and while I am sure they do have some patents, the core technologies required to make DRAM chips must be licensed from one of the other companies. It is good to see the gvt. is urging companies to develop their own IP and have tied the financial assistance that will be allocated to the industry to both the development of local Taiwanese talent and also to encouraging companies to develop their own IP. In my view this will ensure the companies have a far more sustainable business model and ensure their per-unit marginal costs are comeptitive. However, R&D is typically expensive but if other companies can do it why not the Taiwanese. Taiwanese companies have already shown tremendous innovation in other areas of the high-tech sector. I don't doubt they can innovate in this sector too with the right motivation.

As for who gets the money, I would suggest Taiwan Memory will at least get some of it. It does seem to be the favored company with the head/founder John Hsuan being appointed by the gvt. to take over. As for the other alliance (Nanya/Inotera/Micron) well I suppose that would depend on their relationship to the key players in the gvt. We will be interested to see if the money does flow the other way (it is possible) but it may defeat the aims of the gvt. to establishing a competitive Taiwan based DRAM company on the island. Two or three DRAM companies may be one or two DRAM companies too many and therefore the gvt. may have little interest or motivation to invest/support a second alliance. We will see. Only time will tell.

As always your comments/observations are welcome.

Taiwan News: Taiwan Memory Co. files business plan for DRAM restructuring

Taiwan Government to Invest in DRAM Industry

Thats right, the government is committing close to one billion US dollars to bailing out the industry. The bailout (sounds like a US financial blog with that word doesn't it) is to consolidate the industry. The International Herald Tribune has an interesting article on the bailout:

Taiwan will inject as much as 30 billion Taiwan dollars, or $867 million, into Taiwan Memory, the new computer memory chip company that it is setting up to bail out its struggling memory chip sector.

"The less money the government invests, the better," said John Hsuan, an industry veteran named last week by the economics ministry to oversee establishment of the new maker of dynamic random access memory, or DRAM, chips. He said that he expected "no more" than 30 billion dollars from a national development fund to be invested in it.

The article continues

Taiwan announced the formation of Taiwan Memory last week and said the government would hold less than half of the company. The company would try to pull together the island's struggling chip makers, including Powerchip and Nanya Tech, and would also bring in technology from Elpida Memory of Japan or U.S.-based Micron Technology.

Actually this kind of stepping in by the government does not surprise me. The government have long been the silent overlords of the technology sector in Taiwan with the initiation of ITRI, ESRO, the Science Parks and so much more. To their credit, once things get going they step aside and let the entrepreneurs take charge. Even here we see the alliance is a little unwilling. The government doesn't want a majority stake in the company and I am pretty sure once the ship is sailing they will slowly disengage. I don't think the government is looking to nationalize the industry, they are just trying to strengthen it and make it more competitive, which isn't a bad thing.

International Herald Tribune: Taiwan set to inject $867 million for DRAMs

MediaTek Upgrade Sales Forecast, Nanya Pessimistic

While The Telecom reports MediaTek is expected to have higher Q3 earnings based on strong demand from China, Bloomberg reports Nanya is expected to have a worse Q3 than expected. According to The Telecom:

Taiwan-based chip designer, MediaTek, today raised its estimate for third quarter sales growth to 22-25% because of high demand for handsets in emerging markets.

This is a significant jump from the previous estimated sales growth of 8-10%, with profit flatlining.

A statement released by the company said ‘better-than-expected’ mobile phone sales in emerging markets during July and August had caused its clients to increase September orders for cellphone chips.

Demand for mobile phones in China has been particularly strong, with 45% of the Chinese population now owning a mobile handset.

MediaTek is Taiwan’s biggest chip designer.

The company designs microchips for mobile handsets, DVD players, and digital televisions, then contracts out the manufacture of the chips to chip makers.

It is good new for MediaTek. However Taiwanese compatriat company Nanya is not doing so well. Bloomberg writes:

Nanya Technology Co., Taiwan's second-largest memory chipmaker, said its third-quarter loss will be worse than the company projected after a glut drove down semiconductor prices.

The loss will probably be similar to the deficit in the second quarter, Pai Pei-lin, vice president of the Taoyuan, Taiwan-based chipmaker, said in an interview today. Nanya, which posted a second-quarter loss of NT$7.29 billion ($226 million), is expected to report a third-quarter loss of NT$6.1 billion, according to the median analyst estimate compiled by Bloomberg.

The company will probably extend losses next quarter as the turmoil in global financial markets spills over to semiconductor demand, preventing chipmakers from selling their products at a profit, Pai said. Spot prices of the benchmark computer-memory chip have tumbled 35 percent in the past three months, according to DRAMeXchange Technology Inc. in Taipei.

Hopefully the memory industry can turn around soon. Companies there have been suffering for a longtime now.

The Telecom: MediaTek boosts Q3 sales projection
Bloomberg: Nanya Says Third-Quarter Loss to Be Worse Than Company Expected

Nanya and Micron Joint Venture

CNN Money reports Nany and Micron have entered into a 50-50 joint venture to develop memory chips. CNN writes:

Nanya Technology Corp. (2408.TW) said Tuesday it injected another NT$1.37 billion into MeiYa Technology Corp., a joint venture with U.S. chip maker Micron Technology Inc. (MU).

The injection raises Nanya's total investment in MeiYa to NT$2.57 billion, Nanya said in a statement.

Nanya, Taiwan's second-largest memory-chip maker by revenue after Powerchip Semiconductor Corp., and Micron said in April they would each invest US$550 million to set up the 50-50 joint venture, which will make memory chips widely used in personal computers.

The two companies agreed to complete their fund injections in MeiYa by the end of 2009.

MeiYa, based in Taoyuan, northern Taiwan, will start mass production in 2009 with a monthly capacity of 45,000 wafers.

CNN Money: Nanya Technology Injects NT$1.37 Billion In Chip Venture With Micron

DRAM Market Recovery Extended

CNN Money has a great article on the prolonged recover of the DRAM market. According to CNN Money:

In the high-stakes global staring contest of the DRAM memory market, manufacturers are starting to blink. But for some particularly battered competitors, it might be too little, too late.

The market for dynamic random access memory, used mainly in computers, is in the midst of a prolonged period of oversupply that is cutting into cash reserves. As a result, some DRAM makers have begun to cut their capital expenditures, which will eventually lower supply. However, continued investments from larger market players as well as the weak economic environment could push a recovery well into 2009.

Prolonging the market's recovery enables the larger players - like industry leaders Samsung Electronics Co. (005930.SE) and Hynix Semiconductor Inc. ( 000660.SE) - to gain market share at the expense of troubled smaller companies, such as Qimonda AG (QI).

Samsung and Hynix are "certainly contributing to and prolonging the DRAM industry downturn. It was in a recovery mode, but it looks like its going to stall and we're going to go back into an oversupply situation," Caris & Co. analyst Betsy Van Hees said, adding that her most bearish outlook has the downturn lasting into the third quarter of next year.

Not everyone agrees that a recovery will take that long to occur.

"Other than Samsung, most suppliers cut their capital spend dramatically, so the industry supply growth will slow down for sure, triggering recovery next year," said iSuppli corp. analyst Nam Hyung Kim, who believes the DRAM market bottomed in the second-quarter and expects "a few top tier suppliers" to turn a profit this year.

Some prominent DRAM makers recently announced spending cutbacks. For example, last week Taiwan's largest DRAM maker by revenue, Powerchip Semiconductor Corp. (5346.OT), lowered its capital spending this year by 28%, while Nanya Technology Corp. (2408.TW), the second-largest, reduced its capital spending expectations by 33%. The two companies have posted five consecutive quarterly losses.

The article is a good read. According to CNN Money Infineon subsidiary Qimoda is the company in the most danger of exiting the market and their shares have lost 85% of their value over the last year. However, they are not the only ones to have been hammered. Nanya and Powerchip have also had some problems. If the recovery only does start to occur next year, some companies will no doubt exit the market.

CNN Money: Spending By Top DRAM Makers Delays Recovery

Nanya on the road to recovery

Memory chip giant Nanya seems to be on the road to recover. Memory companies have had a tough couple of years. The dip in prices started when the companies were preparing for the launch of Windows Vista a few years ago. Vista requires a lot of memory and therefore memory companies went into full gear in producing the chips. However, the low adoption rate of Vista meant many PC makers and memory retailers had bloated inventories which forced the price down. Nanya has just come out of its fifth successive quarter of losses. The Taipei Times however reports this company may be on the way back. Accoring to the Taipei Times:

Nanya Technology Corp (南亞科技), the nation's second-largest maker of memory chips used in computers, said yesterday quarterly losses had shrunk significantly over a price rebound, adding it would trim capital spending this year to help accelerate recovery from the industry’s severe, glut-driven slump.

Taoyuan-based Nanya posted its fifth consecutive quarterly losses at NT$7.3 billion (US$240 million) for the quarter ending on June 30, contracting 17 percent from NT$8.78 billion in the first quarter, a company statement said. The chipmaker posted losses of NT$2.83 billion a year ago.

“The improvement is mostly because of better chip prices,” said Pai Pei-ling (白培霖), a vice president at Nanya.

Contract prices for dynamic random access memory (DRAM) chips rose at a 20 percent quarterly pace in the April to last month period, Pai said.

Looking forward, Pai said net losses should narrow next quarter on the back of stabilizing DRAM prices, but the recovery may not be strong enough to bring Nanya back to profit any time soon.

It has indeed been a tough few years for the memory companies. Hopefully they will be able to recover quickly.

Taipei Times: Nanya outlines plan for recovery

Taiwanese Companies and XBox

The China Economic News (CENS) reports TSMC, ASE and Nanya are benefitting from Microsoft orders for chipsets for the latest XBox360. CENS reports:

Microsoft began in April farming out production of 65nm graphics chips and north-bridge chips for its latest version of XBox360 game consoles to Taiwanese foundries Taiwan Semiconductor Manufacturing Co. (TSMC), Advanced Semiconductor Engineering Inc. (ASE) and Nanya PCB Corp.

CENS continues:

TSMC is chosen to make the 65nm graphics chips and north-bridge chips for Xenon chips, ASE is contracted to package and test the two chips, and Nanya has won orders to supply flip-chip packaging substrates. The contract has booked a total of foundry capacity for around 10,000 300mm wafers at TSMC, currently the No.1 player of silicon-foundry industry worldwide.

People familiar with the contracts said Microsoft ordered 50% more contract packaging and testing capacity as well as flip-chip substrate in the second quarter than the first one, giving a boost to Nanya and ASE in their revenue growth this quarter.

Microsoft has also contracted two Asustek spinoffs to manufacture the actual consoles. According to Digitimes:

Pegatron Technology and Unihan Technology, two OEM makers spun off from Asustek Computer, have reportedly secured OEM orders for Xbox 360 consoles and will undertake the production at their factories in Suzhou, China, with an initial monthly shipment volume of about 500,000 units, according to industry sources in Taiwan.

The same Digitimes article also continues saying Wistron, the original contract manufacturer for the XBox, has declined to continue manufacturing them because of a reduction in the gross profit margin.

Article 1: Microsoft Contracts Taiwanese Foundries to Build Latest XBox360 Chips
Article 2: Asustek subsidiaries reportedly land OEM orders for Xbox 360 consoles

H.P Breakthrough in Memory Design

The New York Times (NY Times) reports HP scientists have developed a simple circuit element called the memristor that will facilitate the development of smaller circuits. According to the HP scientists, current chip technology is at 45 nanometers and the semiconductor industry can only see shrinking circuits to 20 nanometers based on current technologies. The memristor enables circuits of 15 nanometers to be developed and, according to the HP scientists, can be dropped down to 4 nanometers.

While they are touting this new component as an essential building block for advanced circuits for intelligent computer architectures, the most immediate commercialization opportunities are in developing computer memory products. The NY Times reports:

The memristor, an electrical resistor with memory properties, may also make it possible to fashion advanced logic circuits, a class of reprogrammable chips known as field programmable gate arrays, that are widely used for rapid prototyping of new circuits and for custom-made chips that need to be manufactured quickly.

Potentially even more tantalizing is the ability of the memristors to store and retrieve a vast array of intermediate values, not just the binary 1s and 0s conventional chips use. This allows them to function like biological synapses and makes them ideal for many artificial intelligence applications ranging from machine vision to understanding speech.

Independent researchers said that it seemed likely that the memristor might relatively quickly be applied in computer memories, but that other applications could be more challenging. Typically, technology advances are not adopted unless they offer large advantages in cost or performance over the technologies they are replacing.

One limitation is the speed. The NY Times says:

The most significant limitation that the Hewlett-Packard researchers said the new technology faces is that the memristors function at about one-tenth the speed of today’s DRAM memory cells. They can be made in the same kinds of semiconductor factories that the chip industry now uses, however.

However, according to HP, this disadvantage maybe mitigated by the ability of the chip to store data even when the power is turned off. According to the HP press release:

One application for this research could be the development of a new kind of computer memory that would supplement and eventually replace today’s commonly used dynamic random access memory (DRAM). Computers using conventional DRAM lack the ability to retain information once they lose power. When power is restored to a DRAM-based computer, a slow, energy-consuming “boot-up” process is necessary to retrieve data from a magnetic disk required to run the system.

In contrast, a memristor-based computer would retain its information after losing power and would not require the boot-up process, resulting in the consumption of less power and wasted time.

The news is good for Taiwan DRAM manufacturers. If memristors can be made to work faster they will provide companies like Powerchip and Nanya with new market opportunities. Of course the big Korean companies like Hynix will also be looking at this technology to see what its all about. The even better news for these companies is that the theoretical foundation for memristors was developed 40 years ago and as such is in the public domain. Therefore they can develop their own solutions royalty free. Of course HP is filing patents on their implementation of the memristor so to use the HP implementation may result in steep royalty costs.

Article 1: H.P. Reports Big Advance in Memory Chip Design
HP Press Release: HP Labs Proves Existence of New Basic Element for Electronic Circuits

Will the DRAM Market Recover?

Recently there are reports the DRAM market is on the way to recovery. There is a general level of optimism the market has bottomed out and the only way forward is up. Digitimes says after suffering from severe Q1 losses in 2008, Inotera and Nanya are being more optimistic about the market in Q2. Both companies believe DRAM prices are set to rise. According to the article:

Pei-Lin Pai, Nanya company spokesperson and vice president of global sales and marketing, said inventory at contract customers is tightening. Therefore, Nanya is preparing to raise its quotes by over 10% in the first half of May. An increase in customers adopting 2GB modules built on 1Gb chips is the major reason for the the improvement, Pei explained.

Inotera company president Charles Kao also thinks the DRAM industry is warming up and says they will complete their switch to their 70 nm manufacturing plant in July. In a separate Digitimes article, the chairman of Powerchip Semiconductor Corporation (PSC) Frank Huang said he believed the worst was over. According to the article:

The price of 1Gb DDR2 is likely to stabilize at US$2 in May, and if pricing can surpass US$2.50, the company [PSC] will swing to profit.

This optimism is shared by DRAMExchange. According to them the market can is expected to rise. Commenting on recent trends they said:

Prices posted a surge on April 21, as evident in the 5.32% and 6.69% single-day appreciation for DDR2 1Gb 128Mx8 eTT and 512Mb 64Mx8 eTT. As magnitude of growth is rapid, sellers thus being conservative to release their stocks.

Most DRAM companies have experienced difficulties over the past year or so. The cause of the problem was oversupply when Windows Vista was launched. Vista uses a lot of memory and therefore, to prepare for the launch of the OS, many DRAM manufacturers went into overdrive on production. However, the low adoption rate of Vista by the industry meant there was an excess in the supply of DRAM modules. Standard economic dictates this would drive down the price. And so it did.

Most DRAM companies have felt the pain over the last year. Many of them have been hanging in and fighting against the tide. Hopefully for them the future is bright. For the consumer however DRAM modules will probably become more expensive.

Article 1: DRAM pricing warming up, say Inotera and Nanya
Article 2: DRAM industry over the worst, says PSC chairman
Article 3: DRAM Price momentum to shoot up from June