•Publication Date：03/10/2012
•Source： Taiwan Today
•By Michael Gooch
The bankruptcy filing by Elpida Memory Inc., the world’s third biggest manufacturer of dynamic random access memory chips, with Tokyo District Court Feb. 27 caused great consternation in Taiwan. Local partners, suppliers and investors in the Japanese firm quickly sought assurances from the ROC government, fearing the move would leave them out in the cold.
Although the filing came during the Peace Memorial Day vacation, officials from the Ministry of Economic Affairs and Financial Supervisory Commission wasted no time in drafting a comprehensive response. This did not take too long as many officials had spent the past fortnight contemplating a worst-case scenario after debt talks between Elpida and creditors stalled.
The company, which owes US$5.55 billion, is set to go down in corporate history as one of Japan’s biggest-ever bankruptcies. Elpida will not immediately cease operations, however, instead attempting to restructure its business under court supervision.
A variety of reasons are responsible for Elpida’s sorry state of affairs. These include last year’s floods in Thailand, the strength of the yen against the greenback and the dramatic drop in the price of DRAM products caused by fierce industrywide competition.
Another factor was the firm’s failure to keep abreast of the shift from personal computers to handheld products such as tablet PCs and smartphones. Elpida’s attempt to become a leading supplier of chips for mobile devices floundered as the requisite large-scale capital injections were impossible to make given its net losses over the past 18 months and cash flow problems.
Elpida’s struggles are nothing new. Established in 1999 by several Japanese chipmakers seeking to consolidate their DRAM operations, the merged entity always found the going tough and, in June 2009, received a US$1.7 billion injection from Tokyo and its bankers to invest in cutting-edge production technology.
Taipei was set to contribute to the bailout in return for the transfer of technology to the local DRAM industry, but the Legislature threw a spanner in the works when it refused to greenlight the measure along with the creation of much-maligned Taiwan Memory Co.
To date, the MOEA-coordinated response has focused on minimizing any possible Taiwan impact from Elpida’s inability to pay accounts or meet supply agreements. A one-stop shop has been set up to assist affected firms such as Adata Technology Co. Ltd., Powerchip Technology Corp., local subsidiary Rexchip Electronics Corp. and Walton Advanced Engineering Inc., all of which have been advised to properly secure their claims on the beleaguered DRAM giant.
In addition, the ministry has recommended Taiwan companies waste no time in sourcing backup DRAM supplies to ensure uninterrupted operations. This means South Korean chipmakers Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc. can expect an influx of orders if Elpida collapses or is forced to cut back production.
Samsung is the world’s No. 1 DRAM-maker, controlling 45 percent of the market, trailed by Hynix and Elpida with 22 percent and 12 percent, respectively. The share prices of both South Korean companies surged following the news of Elpida’s troubles, leaving many investors chomping at the bit over the tantalizing prospect of greater profits and increased market share.
Although the global DRAM market has been plagued by chronic oversupply in recent years, news of Elpida’s bankruptcy filing seems to have acted like a tonic. DRAM prices are up 12 percent since the announcement was made, signaling widespread expectations of demand soon outstripping supply.
But this “good news” is not bringing a smile to the faces of any DRAM industry players in Taiwan. The shares of Powerchip and Rexchip tumbled 7 percent on fears they would not collect payments due from Elpida.
The fallout also extended to Powertech Technology Inc., a chip packaging and testing outfit, which experienced a similar drop. The firm relies on Elpida for 40 to 50 percent of its business, meaning it will be in the red this year if it fails to collect its Elpida accounts.
Taiwan Stock Exchange Corp. (TWSE) is similarly set to suffer. Since 2010, bourse officials have moved heaven and earth to attract foreign listings, and Elpida was trumpeted as their biggest catch. But after consultations with the FSC and Securities and Futures Investors Protection Center, TWSE will delist Elpida’s Taiwan Depository Receipts March 28—the same time they are removed from the Tokyo bourse.
With 0.97 percent of the firm owned through TDR issues, the MOEA is taking no chances. It has directed Elpida to buy back all outstanding receipts with no strings attached as per conditions prescribed in registration statements. The ministry believes the company is in a position to comply with this request, and is closely monitoring the situation to ensure nothing goes awry.
While the Elpida bankruptcy filing is not the best news for Taiwan’s DRAM industry, any resultant pain will be short term and limited by the MOEA response. The island’s DRAM firms are certain to avoid being left to twist in the wind, and can look forward to a future shaped by sustainable development and healthier bottom lines.
