Micron status uncertain in Taiwan DRAM bailout deals

After months of speculation, the deal seemed to be coming together: To save its ailing memory chip industry, the government in Taiwan would set up a holding company to merge with local chip makers, infuse them with cash and bolster them with patents and provided either by Japan’s Elpida Memory Group or Boise’s Micron Technology.

But that seems to have changed late on March 11, when Taiwan’s Economic Affairs Minister Yiin Chii-ming said the holding company, Taiwan Memory Co., may buy factories rather than merge with any of the six domestic chip makers, and the company would receive no more than $870 million – a far cry from the $3 billion figure that had been circulating previously.
Micron officials wouldn’t comment specifically on where the company now stands in relation to Taiwan Memory, but prior to Yiin’s comments Micron said it was prepared to offer about 2,000 of its 17,000 patents to the dynamic random access memory (DRAM) consortium in exchange for production capacity, a share of the financial support and the opportunity to root technology development in Taiwan. The benefits would have been greater capacity, fewer direct competitors and a boost to the bottom line.
“Micron believes a new Taiwan R&D center, combined synergistically with the existing Micron R&D operation in Idaho, will have the capability to create world leading memory technology and transfer it to the associated manufacturing base in a manner that will enable industry leadership,” company spokesman Dan Francisco said in an e-mail early on March 11. “…Micron is interested in this effort because Yiin’s comments caused shares of Elpida, Powerchip Semiconductor, ProMOS Technologies and Inotera Memories to drop, and, according to reports, set the major players spinning off into their own merger and recovery plans.
Bloomberg reported on March 12 that Powerchip and its subsidiary Rexchip Electronics Corp. have turned their backs on Taiwan Memory, opting instead to resume merger talks with Elpida. Nanya Technology Corp. and its subsidiary Inotera, which is jointly owned with Micron, are said to be considering their own plans.
Talk of mergers independent of Taiwanese government support is not surprising, said Jim Handy, a Los Gatos, Calif.-based semiconductor industry analyst with Objective Analysis.
In a research brief issued in January, Handy said because of the similarity between DRAM products, manufacturing cost is one of the most important factors for success. At the same time, however, the cost to construct and equip a fabrication plant is growing at more than twice the rate as industry revenues. Consolidation allows DRAM producers to expand market share without the need to construct new fabs, making it “inevitable,” he said.
“Basically the consolidation has to happen because no one has a large enough sales base,” he said in an interview, but added that there’s a definite revenue threshold that must be met before link-ups are worthwhile.
“…with  the  assumption  that  a  $6 billion to $8 billion  fab  will  be  the  norm  by  2010 (when  capital  spending  should  have  returned  in  full  force)  Objective Analysis  has  determined  that  the  minimum revenue level for a commodity DRAM  manufacturer  will  range  from  $5 billion to $6.5 billion, a higher level than all but the  top  two manufacturers [Samsung and Hynix] in both 2007 and  2008,” Handy wrote in the brief. “This  leads  us  to  expect  for some  of  today’s  $1.5 billion players to  be  united  with  their  $3.5  billion competitors.”
Like others in the memory chip industry, Micron, the number four-ranked DRAM supplier, has looked to partnerships with other firms to boost capacity without building new fabs. Battered by the chip glut and global economic downturn, the company has suffered eight straight quarterly losses, and in December 2008 announced Q1 2009 financials showing a net loss of $706 million on net sales that had fallen 8.7 percent to $1.4 billion.
Late last month the company announced that economic conditions required it to cease manufacturing 200 millimeter DRAM at its Boise fab and cull 2,000 jobs by the end of its fiscal year in August. The cuts were in addition to a 15 percent global workforce reduction announced in late 2008.
By the time all the cuts are final, Micron will employ about 5,000 in Idaho – less than it did in 2003 – and its operations in the state limited to 300mm research and development, product design and support, systems integration and corporate, and general services.
Still, Micron is considered to be among the strongest competitors in the memory chip market, and already has a strong presence in Taiwan through its Inotera joint venture with Nanya. Francisco said on March 12 that changes to the Taiwan consolidation plan would not affect that.
“Micron will continue to work with the Taiwan government, it’ll continue to work with Nanya on Inotera and the company believes it can provide the best technology path moving forward for the Taiwan DRAM industry,” he said in an e-mail.
Shares in Micron had climbed steadily over the previous week on rumors of the Taiwan DRAM link-up, rising from a closing price on March 9 of $2.58 to around $3.50 in midday trading on March 12.