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

UMC Facing More Trouble

The media are reporting that the Hsinchu and Taipei offices of United Microelectronics Corporoation (UMC), the worlds second largest contract chipmaker, have been searched by prosecutors in relation to allegations about insider trading that took place in 2006. The Taipei Times reports:

Taiwanese prosecutors yesterday raided offices at United Microelectronics Corp (UMC, 聯電), the world’s second-largest custom-chip maker, as part of a probe into insider trading.

Prosecutors are investigating transactions that took place around April to July 2006, Lo Hsueh-mei (羅雪梅), a spokeswoman for the Hsinchu District Prosecutors’ Office, said by telephone yesterday.

A public relations official at UMC confirmed to the Taipei Times that the company’s Hsinchu headquarters and its Taipei office were searched yesterday afternoon over some of the company’s re-investments.

But the official, who requested anonymity, did not clarify which re-investments prosecutors were investigating nor confirm that the raid was connected to the insider trading probe.

The business news Web site cnYes.com said last night that the probe could be related to UMC’s purchases of shares of ProMOS Technologies Inc (茂德科技), the nation’s third-largest maker of computer memory chips, in 2006. It did not cite sources.

News of the raid came on the same day the company announced it would spend as much as NT$4.21 billion (US$134 million) to buy back 1.51 percent of its shares on the open market to prop up distressed share prices.

This is just another scandal in the long history of UMC. A few years ago the then Chairman Robert Tsao was accused of (and later acquitted) of not disclosing information about investments in China a few years ago. Robert Tsao was one of the early and youngest stars of the Taiwan tech sector and the allegations led to his early resignation and the rise of Jackson Hu to Chairman (Jackson Hu recently resigned from the position. See Jackson Hu Takes a Step Back at UMC ). The International Herald Tribune wrote at the time:

United Microelectronics Corp., the second-biggest supplier of made-to-order semiconductors, has challenged Taiwan prosecutors to indict its chairman, Robert Tsao, to clear up allegations of wrongdoing relating to He Jian Technology, a company based in Suzhou, China.

"In order to eliminate disputes arising from the He Jian case, we would like to ask the Hsinchu District Prosecutor's Office to indict Chairman Robert Tsao as soon as possible" for any wrongdoing, UMC said in an open letter published Wednesday on the front page of the China Times newspaper.

A United Microelectronics spokesman, Alex Hinnawi, confirmed that the letter had come from the Hsinchu-based company. He declined to elaborate. Tsao was unavailable to comment, according to his secretary, as was a spokesman for the Hsinchu District Prosecutor's Office, Tsai Tien-yuan.

Tsao was questioned by investigators on June 9 after being fined 3 million Taiwan dollars, or $95,600, by Taiwan's Financial Supervisory Commission in April for breaching securities laws with late disclosure of information relating to He Jian.

UMC said in March that it would receive a 15 percent stake in He Jian, worth more than $110 million, in compensation for "past assistance" and for anticipated cooperation. The companyearlier had denied that it had an investment in He Jian.

Earlier this month the Chairman of Powerchip, Frank Huang, was also indicted for insider trading. The China Post wrote:

Powerchip Semiconductor Corp., Taiwan's biggest maker of computer-memory chips, fell the most yesterday in more than five years after prosecutors indicted Chairman Frank Huang for insider trading and breach of trust. Powerchip tumbled 7 percent, the daily limit, to close at NT$6.68 on the Taiwan Stock Exchange, the biggest decline since June 23, 2003. The benchmark TAIEX index lost 0.3 percent.

Huang, 58, profited from a share sale in Macronix International Co. based on insider knowledge, and breached shareholders' trust by using company funds for renovations and furniture for his residence in 2003 and 2004, the Hsinchu District Prosecutors Office said on its Web site Thursday.

Taiwan prosecutors are seeking a jail term of four years and six months and a NT$60 million fine for Huang. Powerchip denied the allegation.

Who knows what these people were thinking or why they were targeted. They are two fairly big companies and have been around for a long time. They should know better. It will be interesting to see how these two cases pan out.

Taipei Times: UMC headquarters, Taipei office raided over ‘insider trading’
International Herald Tribune: UMC lays down challenge over He Jian
China Post: Powerchip shares fall after chairman Huang indicted

DRAM Industry Still Struggling

The DRAM industry continues to sputter along with a great deal of uncertainty about which companies are profitable and which companies are not. The Korean giants Hynix and Samsung continue to dominate the market and have even gained market share at the expense of Taiwan's Powerchip and Germany's Qimoda. Despite these gains in market share, the net imbalance between supply and demand and bloated inventories at PC manufacturers are still putting downward pressure on DRAM prices. This has even caused some companies to exit the market.

The Korea Times notes:

Hit by falling chip prices and rising inventories, chip manufacturers have begun to cut their capital expenditure, hoping the measures eventually lower supply.

The contract prices of some DRAM chips have risen about 30 percent this year. However, that is well short of making up for huge losses in 2007, when some chip prices plunged more than 90 percent, according to industry estimates.

But South Korea’s Samsung Electronics and Hynix Semiconductor, the world’s No. 1 and No. 2 DRAM makers, respectively, were winners in the quarter, adding to their market shares at the expense of troubled rivals such as Taiwan’s Powerchip and Qimonda of Germany.

"Samsung Electronics will hit the jackpot with an expanded market share if struggling chipmakers eventually exit the industry," says Kim Soo-kyoum, semiconductor director at researcher IDC.

"We forecast our market share to increase by one or two percentage points each year from the mid-30s toward the high 30s in coming years," Hong Wan-hoon, Samsung’s vice president at its semiconductor unit said in a conference call with analysts on the occasion of the second quarter earnings meeting.

Despite the optimism of gain in market share and the increase in DRAM prices over the past six months, iSuppli predicts that in the short to mid term, DRAM prices may drop by as much as 10%. iSuppli writes:

After experiencing a mild recovery in the second quarter, the global DRAM market is showing renewed signs of weakness, with prices expected to fall during the third quarter due to bloated inventories, according to iSuppli Corp.

After iSuppli upgraded its rating of near-term conditions for DRAM suppliers to “Neutral,” up from “Negative” on April 25, the market bottomed out and manufacturers’ profitability improved during the second quarter. Following months of losses, a few top-tier suppliers managed to attain profitability starting in June and a handful are expected to do so in the third quarter.

However, the market is showing renewed warning signs, with OEM contract prices for DRAM likely to decline in August and September. The main question now facing the industry is how much prices will decline during the third quarter.

“The average DRAM contract price is expected to decline by more than 10 percent from the current level by the end of the third quarter,” predicted Nam Hyung Kim, director and chief analyst, memory ICs, at iSuppli. “The inventory level in the channel and among PC OEMs has increased compared to the second quarter. Global economic conditions are adding more uncertainty on the demand side of the equation.”

DRAM manufacturers are in a tricky position. The massive losses endured in 2007 have not been made up and this has forced many of these companies to cut back on thei CAPEX. While the bigger companies should be able to endure, the smaller companies will probably be edged out of the market one by one.

iSuppli: iSuppli Issues Warning on Short-Term DRAM Market Conditions
The Korea Times: Local Chipmakers Beat Rivals in DRAM Market

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

Chipmaker Shares Jump

Disruptions caused at the Hynix Semiconductor plant in China has pushed up the sport prices from DRAM modules and helped the share prices for some of Taiwan semiconductor companies increase. Taipei Times reports:

Stock prices of the nation's major computer memory chipmakers outperformed the main bourse yesterday amid speculation on further price rebounds.

This came after disruption at a Chinese plant belonging to the world’s second-largest memory chipmaker Hynix Semiconductor Inc, which could lead to an ease in a supply glut.Shares of the nation’s biggest dynamic random access memory (DRAM) chipmaker, Powerchip Semiconductor Corp (力晶半導體), jumped 0.78 percent to NT$13 yesterday, better than the turbulent TAIEX index, which fell 2.43 percent.

South Korean Hynix yesterday said the 15-hour outage at a Chinese plant operated jointly with Numonyx, a joint venture with STmicroelectronics, Intel and Francisco Partners, would not have a major adverse effect as emergency power generation activated immediately.

The affected plant, located in Wuxi, southern China, makes 100,000 12-inch wafers of DRAM chips a month, accounting for about half of the Korean firm’s total DRAM chip output. Hynix also operates an 8-inch plant in Wuxi, making memory chips used in consumer electronics.

“Hynix’s power outage may affect one week’s worth of production,” Taipei-based market researcher DRAMeXchange Technology Inc (集邦科技) said in a statement yesterday.

DRAMeXchange said the output disruption greatly boosted the spot price of benchmark DDR2 1Gb 128Mx8, which jumped 1.21 percent to US$2 per unit yesterday following an almost five percent decline during the slow season last week.

Hynix said the outage on Monday was likely to result in a US$16million to US$18 million loss in sales. It would take about two days for the plant to resume normal operations, the chipmaker said.

Article: Taiwan chipmakers' stock jumps

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