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Thursday, March 29, 2012

ANALYSIS

Elpida failure to hasten industry consolidation

Severe environment may prompt tieups in semiconductor sector


By MIE SAKAMOTO
Kyodo

Elpida Memory Inc., the last domestic maker of DRAM chips, was delisted from the Tokyo Stock Exchange Wednesday in the biggest corporate failure in Japanese manufacturing history.

Elpida's failure has shed light on the severe environment facing domestic semiconductor manufacturers, which could accelerate moves to form tieups with other firms — including foreign ones — to keep up with rivals.

Elpida, the sole dynamic random access memory maker in Japan, was given court approval last week to start a rehabilitation procedures after filing for bankruptcy in February even though it received government investment in 2009 to enhance its financial base.

At a news conference in February, Elpida President Yukio Sakamoto said such factors as plunges in DRAM prices, the strength of the yen and sluggish DRAM demand due to production disruptions caused by the massive flooding in Thailand led it to declare bankruptcy.

"The fluctuations in the currency in the past year have come to the point where one company cannot make up for them by itself," Sakamoto said, referring to the yen's surge to a postwar record high of 75.32 against the dollar in October.

Amid such difficulties, Sakamoto scrambled to find a partner to help turn Elpida around, but to no avail.

The company, which focused on making DRAM chips used in PCs and smartphones, also had to deal with a "risky" market, said Akira Minamikawa, vice president of research firm IHS iSuppli Japan.

"The ups and downs in the DRAM market are steep compared with other devices," said Minamikawa, adding it tends to fall prey to investment competition that often leads to the collapse of the supply and demand balance.

"It is very hard to predict the prospects for the market, making it difficult for companies to do business," he said.

Elpida's rivals such as Samsung Electronics Co., Hynix Semiconductor Inc. and Micron Technology Inc. all manufacture another key memory device called NAND flash memory chips together with DRAM chips, helping to diversify risks, he said.

The NAND flash memory is a type of chip that can retain data without a power supply and is widely used in consumer electronics.

The government's stance, which seemed to lack consistency in helping out the struggling chip company, should also take the blame for its failure, some analysts have said.

In 2009, the government decided to help Elpida under the revised Industrial Revitalization Law, leading to an investment of around ¥30 billion by the state-run Development Bank of Japan.

Before filing for bankruptcy, Elpida had considered asking the government to extend the March 31 deadline for its rehabilitation program by three months, effectively postponing the repayment deadline for government loans. However, industry sources said, the firm has abandoned this option after the government voiced reluctance to giving the firm further support.

"In the semiconductor business, we need massive capital investments — so we cannot get by without ample funds," an official with an overseas semiconductor maker said.

"It goes without saying that Elpida could not continue business once it failed because it lacked capital from the Economy, Trade and Industry Ministry," the official added.

Minamikawa of IHS iSuppli Japan said the government should at least clarify whether it considers the semiconductor sector one of the nation's key industries.

"If it wants to nurture the industry, it should offer more clear-cut support," he said.

In the DRAM market, domestic manufacturers once had an overwhelming share of about 80 percent in the 1980s, prompting Washington to pressure Tokyo to buy U.S.-made semiconductors. Now the market is led by South Korean firms, which hold about a 60 percent share.

To continue its DRAM business, biddings will be held to select Tokyo-based Elpida's rehabilitation sponsor, with companies such as Toshiba Corp., computer chip maker Intel Corp., Taiwan Plastic Group and Micron Technology being floated as candidates.

Apart from Elpida, Panasonic Corp. and Fujitsu Ltd. have begun talks with major chipmaker Renesas Electronics Corp. on integrating their system chip operations. The firms have been considering creating a new company with investment from the Innovation Network Corporation of Japan, a public-private entity for investing in companies with promising operations.

If Elpida can team up with Toshiba — which focuses on flash memory chips — it will allow Toshiba access to Elpida's technology and diversify its own risk, analysts said.

But a consortium of domestic manufacturers would not automatically lead to a promising future, Minamikawa said, noting that groups of Japanese firms tend to focus only on the domestic market, putting off overseas expansion.

"If Japanese makers work together, there will be certain good points" such as preventing the outflow of technology and avoiding competition with each other for a domestic market share, which would help to stabilize product prices.

If they want to be competitive in the global market, though, they should team up with a foreign company, he said.

"It could be a semiconductor maker or a trading house . . . but it should be a company that actually runs a business in the global market."

Hitachi to cut costs 5%

kyodo

Hitachi Ltd. will seek to slash its combined annual costs by 5 percent from the current level, possibly by the end of fiscal 2015, with the steps translating into an annual cutback of ¥400 billion.

Hitachi said Tuesday it wants to convert its cost structure into the one that will enable it to stave off global competition from its rivals in the field of infrastructure-related equipment and machinery.

Makoto Ebata, senior managing director, told a news conference, "We would like to offer high-quality merchandise at low costs."

Hitachi said it will seek to consolidate production facilities around the world that are manufacturing the same products, while speeding up the developmental process of motors that do not require the use of rare earth metals in production.



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