DRAM Industry in Flux as Elpida Files for Bankruptcy
By Mark LaPedus, SemiMD senior editor
The DRAM industry remains in flux, as struggling Elpida Memory Inc., Japan’s sole DRAM maker, Monday (Feb. 27) filed the equivalent of bankruptcy in that nation.
The move was not a surprise, as the memory maker has been hit hard by massive debts and the ongoing DRAM downturn. It also follows a recent move by SK Telecom to gain a controlling interest at memory rival Hynix Semiconductor Inc. And what’s more, the filing could accelerate Micron Technology Inc.’s reported move to acquire Elpida — an event that could shake up the DRAM landscape.
At a board meeting on Feb. 27, 2012, Elpida resolved to file a petition for the commencement of corporate reorganization proceedings and filed the same with the Tokyo District Court. As part of the move, subsidiary Akita Elpida Memory Inc. has simultaneously filed a petition for the commencement of corporate reorganization proceedings.
“We have concluded that, if we continue the business by ourselves, we will face cash shortage soon,” according to statement from Elpida regarding the filing. “Moreover, we assumed that, if we left this situation and then cash shortage would become reality, the corporate value of our company must significantly fall, there must be no way to be supported by any sponsorship, and the people concerned such as the creditors must suffer more inconvenience.”
“Elpida has about $5.5 billion of debt and most of the discussions with banks, suitors, and customers have so far been unsuccessful,” said Vijay Rakesh, an analyst with Sterne Agee.
If Elpida goes under, it would provide fewer choices for DRAM customers. But it would have a positive impact on the other DRAM players, such as Hynix, Micron and Samsung. There is too much worldwide DRAM capacity right now, and the demand picture is changing from a PC- to a mobile-centric world.
“We believe with Elpida filing for bankruptcy protection, especially with cash constraints to pay creditors, could imply some capacity coming out of DRAM,” Rakesh said. “Elpida has two fabs, one in Hiroshima, Japan and the other is the Rexchip fab in Taiwan; both are 300mm and have 100K wfpm (wafers-per-month) capacity each. We believe, like the Qimonda bankruptcy in 2008, Elpida could sell off some of its assets, potentially the Hiroshima fab, to pay off creditors and even sell some additional 300mm fab equipment as was the case in the Qimoda bankruptcy.”
Elpida’s move could also fuel the reported acquisition talks with Micron. For some time, Micron has been in talks with Elpida, according to sources, although many view this as a “bad deal” for the U.S. DRAM maker.
“One of the potential concerns was a ‘bad deal’ by Micron, but we view this announcement as signaling Micron’s conservative approach here (which is) preferring an asset purchase at discount as opposed to any other solution like an equity/debt purchase,” said C.J. Muse, an analyst with Barclays Capital, in a report that addresses Elpida’s bankruptcy filing.
“Our understanding is that Micron has delayed delivery of immersion litho tools to IMFS and view this as indicative of Micron thinking that it may be able to secure leading-edge memory capacity on the cheap over the near to medium term,” Muse said. He was referring to IM Flash Singapore (IMFS), a joint NAND venture between Micron and Intel.
A possible merger between Micron and Elpida has the potential to redraw the competitive landscape in DRAMs, possibly challenging Samsung. A union between Elpida and Micron would catapult the newly consolidated entity to second place in the global DRAM market, with a combined capacity of 374,000 wafer starts per month (WSPM), according to IHS iSuppli.
The newly merged company would have a 28 percent share of worldwide DRAM manufacturing capacity, placing it just behind leader Samsung, currently with 433,000 WSPM or 33 percent share of global capacity, according to the firm. On their own, Elpida and Micron usually place in the No. 3 and No. 4 spots, respectively.
A combined Elpida-Micron duo could leapfrog Hynix in the DRAM world. Last year, South Korean mobile carrier SK Telecom Co. purchased a 21 percent stake in Hynix Semiconductor for $3 billion. SK has essentially taken a majority interest in Hynix. SK Group Chairman Chey Tae was recently named co-CEO at Hynix, according to reports. Hynix has been reportedly renamed SK Hynix, sources said.
“Overall, a Micron/Elpida merger would present Samsung with its most powerful rival yet,” said Mike Howard, senior principal analyst for DRAM & memory at IHS, in recent report. “Samsung is usually 10 percentage points ahead of its next competitor, but the merger would trim its formidable market share lead by half, to 5 percentage points.”
Samsung dominates DRAM share (Source: IDC)
The rise and fall of Elpida
Elpida was established in 1999, when NEC Electronics and Hitachi jettisoned their DRAM units. In 2005, Elpida formed Tera Probe, Inc., a company specializing in wafer probe testing. It also established Akita Elpida Memory, Inc., a back-end subsidiary. And it also established Rexchip Electronics Corp., a joint DRAM venture company with Taiwan’s Powerchip.
Over the years, Elpida and other DRAM makers were hit hard by the down cycles. “At the beginning of 2007, the price of DRAM started falling sharply and, combined by a significant decrease of demand for the products due to the global economic downturn begun in the fall 2008, such price further declined,” according to the statement from Elpida regarding the bankruptcy filing. “In the fiscal year ended March 2009, we were forced to experience a significant deterioration in business results compared with the previous year.’’
Hard hit by the downturn, Elpida in 2009 received an approval on a business restructuring plan under the Act on Special Measures Concerning Revitalization of Industry and Innovation of Industrial Activity from the Ministry of Economy, Trade and Industry.
Still, “the circumstances around our company turned from bad to worse due to the factors such as the record-breaking strong yen against the U.S. dollar, and the steep fall of the price of DRAM products by fiercer competition in the DRAM industry,” according to the statement. “Within such continuing harsh management environment, an additional negative factor, which is a stagnation of demand for DRAM due to the great flood in Thailand in 2011, has arisen.”
