Elpida’s Woes Cause Ripple Effect in IC Industry
By Mark LaPedus, SemiMD senior editor
The fallout from Elpida Memory Inc.’s bankruptcy filing, announced earlier this week, has begun to surface and the supply chain is bracing for the worst.
Spot prices for PC DRAM jumped by more than 15 percent in just one day following the news, according to research firm IHS iSuppli, although memory prices leveled off during this week. And in what is good news for DRAM makers — and bad news for OEMs — average selling prices (ASPs) for DRAMs could jump in the long run, according to IHS iSuppli.
Elpida’s filing also sent shock waves to Taiwan, in which one group — Powerchip and its affiliates — could collapse like a house of cards. One DRAM vendor in the group — Taiwan’s Rexchip Electronics Corp. — remains in limbo. Rexchip, a DRAM foundry that is technically a subsidiary of Elpida, this week halted all shipments to Elpida, a Rexchip spokesperson told SemiMD.
A-Data, Powertech and others are reportedly owed huge sums of money by Elpida, according to reports. And semiconductor equipment and materials suppliers, which do business with Elpida, are still assessing their exposure to the Japanese DRAM maker. Applied, Advantest, ASML, FormFactor, Intermolecular, TEL and others sell equipment or provide services to Elpida.
The rise and fall
As reported, the DRAM industry remains in flux, as struggling Elpida, Japan’s sole DRAM maker, Monday (Feb. 27) filed the equivalent of bankruptcy in that nation after it failed to secure a bailout. Elpida, the world’s third largest DRAM maker, supplies parts to a number of customers. In fact, Elpida supplies an inordinate amount of mobile DRAMs to Apple Inc.
For some time, Elpida has been engulfed by the “perfect storm,” which includes the “strong yen, collapsing DRAM prices, and an oversized debt load,” according to VLSI Research Inc. As of Friday (March 2), Elpida was still in the beginning stages of its reorganization plan. And there are still reports that Micron Technology Inc. may buy Elpida — a move that could change the DRAM landscape.
Elpida’s move to file bankruptcy protection will benefit the remaining DRAM players, such as Hynix, Micron and Samsung. It is expected to reduce overall DRAM supply, while boosting pricing and revenue in the second half of the year, according to IHS iSuppli.
If more than 25 percent of Elpida’s manufacturing capacity is taken offline, the global ASP for all DRAM shipments is projected to rise to $1.21 by the end of 2012, up 15.5 percent from $1.05 at the end of the first half of the year, according to the firm. Without such a reduction in capacity, pricing would rise to $1.13 at the end of the year, up just 8.5 percent from the price at the end of the first half, according to the firm.
“A meaningful reduction in Elpida’s manufacturing will cause the DRAM market to go into a state of undersupply, causing prices to increase,” said Mike Howard, senior principal analyst at IHS.
“Shipments likely will decrease because of the Elpida bankruptcy, even though the resulting increase in revenue — driven by higher prices — will cause the market to perform better than expected in 2012,” he said. “The ultimate fate of Elpida’s manufacturing assets, which remains to be decided, will be the major factor impacting pricing and revenue growth in 2012. But one thing is certain: Elpida’s bankruptcy means the remaining DRAM players can look forward to a much rosier 2012 than they did just one week ago.”
IHS conservatively estimates that 2012 DRAM revenue will exceed $30 billion, compared to the previous forecast of $24 billion.
Elpida is still in operation, but it “will look very different on the other side of bankruptcy. Not only will the company have to deal with its massive debt load of more than $5 billion, it also must deal with the challenges of manufacturing in the high-cost regions of Japan,” according to IHS iSuppli.
“If all of Elpida’s fabs — such as its Hiroshima facility — cease making memory permanently, then the chronically oversaturated DRAM industry may finally reach a state of supply/demand equilibrium,” Howard said. “While it’s unlikely that all of Elpida’s production will disappear, this development could mark a new era for the DRAM market — one marked by stronger pricing power for suppliers.”
Filing hits Taiwan
Elpida’s filing could have dire consequences in Taiwan: Part of the island’s DRAM industry could collapse. “The future of Rexchip is also uncertain,” according to VLSI Research.
In 2006, Rexchip was established as a 300mm DRAM manufacturing joint venture between Taiwan’s Powerchip Semiconductor Corp. and Elpida. At the same time, Taiwan memory house Powerchip was also serving as a DRAM foundry for Elpida. During that period, Elpida was looking for a way to gain cheap capital and fab capacity to keep up with its rivals in Korea. The Japanese DRAM maker found a suitable partner in Powerchip.
But for some time, Powerchip has been hit hard by the DRAM downturn and a worldwide economic crisis. In 2009, Elpida increased its stake from 48 percent to 52 percent in Rexchip. As a result, Rexchip became a subsidiary of Elpida.
Last year, Rexchip completed a pilot run of Elpida’s 30nm 2-Gbit DDR3 products. Then, Elpida shifted a large percentage of DRAMs for desktops to Rexchip. In turn, Elpida shifted its production of higher-margin mobile DRAM within its 300mm fab in Japan, in a move to serve Apple and other OEMs.
According to a report from Dow Jones, Powerchip this week sold $130.9 million worth of shares in Rexchip to Powertech, a chip-packaging house with close ties to Elpida. Elpida, Powertech and UMC are working together to develop 3D DRAMs based on through-silicon-via (TSV) technology.
The move reduced Powerchip’s stake in Rexchip to 21.31 percent. Elpida still owns 64.7 percent, Powertech now owns 9.32 percent, and the rest is owned by Rexchip’s employees, according to the report.
Like Rexchip, Powerchip’s future is unclear. Loss-ridden Powerchip is still making mobile DRAMs on a foundry basis for Elpida. Last year, Powerchip branched out into the specialty foundry business. It is providing some 300mm foundry capacity for analog giant Maxim Integrated Products Inc.
Two other Taiwan DRAM makers — ProMOS Technology Inc. and Winbond Electronics Inc. — also make DRAMs on a foundry basis for Elpida. ProMOS and Winbond have less exposure to Elpida. However, ProMOS’ days could be numbered. According to DigiTimes, GlobalFoundries was interested in buying a 300mm fab from ProMOS. A spokesman from GlobalFoundries declined to comment.
Tool vendors brace for the worst
Elpida’s filing could also have a ripple effect among fab tool and electronic materials suppliers that do business with the Japanese memory firm. But it’s too early to tell if vendors will be impacted.
On the ATE side, Advantest Corp. and FormFactor Inc. issued statements. “Elpida Memory, Inc. and Akita Elpida Memory, Inc., customers of Advantest, have filed for corporate reorganization,” according to a statement on Advantest’s site.
“Any effects of this on Advantest have yet to be determined, but Advantest and affiliated companies holds about 300 million yen ($3.7 million) in accounts receivable from Elpida Memory and Akita Elpida Memory,” according to the ATE giant. “Also, Advantest has invested 800 million yen ($9.8 million) in Elpida Business Solutions, Inc., a subsidiary of Elpida Memory.”
Regarding Elpida, probe card maker FormFactor said the event is not currently expected to have a material impact in the near term on its financial position or results of operations. Sales to companies in the Elpida group represented 18.2 percent of FormFactor’s 2011 revenues, including sales to Rexchip and Tera Probe Inc., which are not directly involved in the corporate reorganization proceedings.
FormFactor said it has a long standing relationship with Elpida and added it remains committed to supporting Elpida’s wafer test requirements as it works through its corporate reorganization.
Others are also assessing the fallout from Elpida. “It’s unclear how that will impact DRAM spending for the year,” said George Davis, executive vice president and chief financial officer at Applied Materials Inc., during a presentation at this week’s 2012 Morgan Stanley Technology, Media and Telecom Conference in San Francisco.
Hamid Zarringhalam, executive vice president for Nikon Precision Inc., said: “I can’t discuss customer specific situations.”
A spokesman for ASML Holding NV said: “I don’t have any details on Elpida, but (I) do know that there is no material consequence for ASML as a result of their bankruptcy filing.”
R&D foundry Intermolecular Inc. (IM) does business with Elpida, but IM sees no impact in the short term, according to a spokesman for IM.
Tags: Elpida, GlobalFoundries, Hynix, Micron, Powerchip, ProMOS, Samsung