Rumors Swirl Regarding Fate of Troubled Elpida
By Mark LaPedus
The rumors are intensifying regarding the fate of Elpida Memory Inc., including ongoing reports that Micron Technology Inc. will make a bid for the troubled Japanese DRAM maker. Some even wonder if Apple Inc. should make a bid for Elpida.
As reported, the DRAM industry remains in flux, as struggling Elpida, Japan’s sole DRAM maker, in February filed the equivalency of bankruptcy in that nation.
Even before the filing, Micron was reportedly looking to buy Elpida. Others think Micron will only buy Elpida’s assets in Taiwan. Still others believe Elpida will restructure and get a favorable loan.
One observer believes there is another remote possibility: Apple could buy Elpida. Elpida is one of Apple’s key suppliers for mobile DRAM products for the iPhone and iPad. That scenario, however, is highly unlikely. Apple could find other sources of supply if Elpida goes under.
“Elpida is expected to solicit bids from investors over the coming weeks and potential buyers are scheduled to enter the first round of bidding in March, with (the) second round in April with a decision made by May,” said C.J. Muse, an analyst with Barclays Capital, in a new report.
“The key question will be whether the trustee can get debt holders to sign off on this,” Muse said. “Importantly, though, we think the process could take some time, which means a resolution might not come until the July/August time frame.”
Still, the question is what will eventually happen to Elpida. According to Digitimes, a Taiwan Web site, Micron reportedly offered $1.5 billion to buy Elpida.
“We note that a potential sale price of $1.5 billion is inline with the $1.2-to-$1.9 billion range we have been highlighting, suggesting 20-to-30 cents on the dollar based on Elpida’s total capacity,” Muse said.
Barclays estimates that new leading edge capacity costs about $30 million per 1,000/wafer-starts-per-month (1K/wspm), with a next generation node shrink costing about $7.5 million per 1k/wspm.
Elpida has one 300mm fab in Hiroshima, Japan. The company also has a 300mm fab subsidiary in Taiwan, dubbed Rexchip. “Considering Hiroshima currently has (about) 120,000 wspm and Rexchip (about) 85,000, this suggests (that) new capacity would cost (about) $6.3 billion,” according to Barclays.
Hans Mosesmann, an analyst with Raymond James & Associates Inc., poses another scenario. “Micron has not shied away from consolidation opportunities in the past, and we believe they may end up picking up Elpida’s assets, preferably in Taiwan, but only at the right price,” he said.
“Note that Micron could potentially convert the capacity into NAND at a much lower cost, with that conversion process taking between 9-18 months depending on ramp intentions. We also believe Micron would be content to pass on Elpida if the asking price is too high, and would instead deploy capital in higher margin areas” such as NAND, Mosesmann said.
David Motozo Rubenstein, an analyst with Religare Capital Markets in Japan, outlines another possible scenario for Elpida: The troubled DRAM maker can be salvaged.
There are various possibilities in this scenario. One or two bidders could “lend Elpida money, but not take over the company,” Rubenstein said. In this case, Elpida could continue as a DRAM player “with infusion from government or other investors.”
Elpida could also dump its DRAM business and focus on NAND flash or the foundry business, he said. Not long ago, Elpida and Spansion Inc. signed an agreement to co-develop low-density NAND. The other possibility for Elpida is to “cease operations” and sell the assets, he added.
