The Dream is Gone: No Gvt. Backed Merger for Taiwanese Memory Industry

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

Taiwanese Memory Maker's May Receive Help

The Financial Times (FT) reports Taiwanese DRAM manufacturers:

Taiwan's government is moving closer to devising a bail-out package for the country's struggling memory chipmakers, many of which face impending loan repayments amid mounting losses.

Shih Yeh-Shiang, viceminister of economic affairs, said yesterday Taipei had earmarked T$200bn (US$6bn) in financial aid for ailing large companies, which includes producers of dynamic random access memory (D-Ram) who are the hardest hit globally among semiconductor makers.

Half of the T$200bn earmarked by the government had been approved by the legislature, Mr Shih told reporters yesterday, while the other half was under review. He said that: "All options are on the table" as to how the government will use that money and what it would demand from chip companies in exchange.

Although the government previously nixed a wide-scale DRAM bailout, it seems the situation has become increasingly dire and that these companies are starting to receive some support. The FT article outlines some of the strategies employed by these companies including extending their loan terms with the banks. Unfortunately for these companies, they will have to wait until the end of the Chinese New Year for more solid government resolutions to be made.

Some bittersweet news for Taiwanese DRAM makers is that Samsung Electronics intends to cut their CAPEX significantly. According to Digitimes:

A recently-reported slash in capex for 2009 by Samsung Electronics has raised concerns among market watchers that a deceleration in the growth of the global memory market may become even more severe than expected this year. However, the memory chip maker's capex cuts will reduce the pressure on its competitors, which are struggling from overcapacity and falling chip prices.

With an easing in competitive pressure the market may recover but will the demand be there? The DRAM industry has been struggling for a long time now. Something has to change.

Financial Times: Taiwan closer to bailing out its chipmakers
Digitimes: Samsung reported 50% capex cut dampens memory outlook, but lifts pressure on competition

64 GB Transcend Flash Drive Launched in India

I need to get one of these! Seriously! Its almost like carrying a hard drive in your pocket. 64 GB is a lot of space and in a flash drive format makes it very portable. Combine this with the Eee PC or some other netbook and you have ample storage space combined with extreme portability. Of course if you are into computers for other reasons (gaming, videos etc.) you will need a more powerful system. However, for an average computer Joe like me, this is sufficient.

Anyway, the 64GB flash drive was launched in India (since I was on furlough I probably missed the product announcement). Channel Times writes:

Transcend Information, a manufacturer of flash memory products, has announced the availability of its new 64GB JetFlash V20 USB flash drive in India. The V20 features pearlescent chassis with a semi-transparent color-band that lights up during use, the company said. Its storage space allows users to take back up, and store all essential files, music, digital photos and videos.

Austin Huang, regional head (Sales), SAARC & APAC, Transcend, said, "We are extremely delighted to announce the availability of the 64GB version of our JetFlash V20 flash drives in India. We are confident that our customers will appreciate the huge capacity available to them to store their precious data."

Channel Times: Transcend Unveils 64GB USB Flash Drive in India

Micron may Acquire Qimonda

Reports are surfacing that Micron, the largest U.S. maker of memory chips, may buy German competitor Qimonda AG. Digitimes writes:

One of the key drivers for the deal is the fact Micron will be able to leverage Qimonda's Inotera joint venture, which would add additional Taiwan facilities and IP revenue opportunities for Micron, in addition to its existing MeiYa joint venture with Nanya Technologies. Qimonda's fab assets are also more valuable to Micron, compared with other potential buyers, such as Hynix or Nanya, as their common geographies allow logistics synergy, Freedman noted.

Since Qimonda cannot fund projected losses through fiscal year 2009, Freedman expects that a deal could be done for US$350 million, near US$1 per share, or 25% of the US$4 per share book value. Freedman estimates an additional cost of about US$100 million would be required to convert Qimonda fabs to Micron processes.

Still, such a deal would would significantly reduce DRAM capacity investments in fiscal year 2009 for Micron, according to the note. Freedman calculated a US$500 million fiscal year 2009 capex for Micron's organic DRAM capacity.

Freedman concluded that the acquisition of Qimonda would position Micron as one of the two surviving memory leaders (along with Samsung) able to control supply and IP as the industry waits for long-term demand drivers to materialize, namely SSDs.

Well as we have noted before, the memory industry is in a very long-enduring slump. They haven't recovered from the excess capacity they generated when Windows Vista was launched and continue to struggle to leverage higher prices. Consolidation in the industry is therefore expected.

Digitimes: Micron-Qimonda deal likely to happen, says analyst

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 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

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

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

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