Sun, Jan 11, 2009 page12

• ANALYSIS: ProMOS in limbo after Elpida consolidation plan

  LIFE RAFT In the first three quarters of last year alone, local DRAM chipmakers reported huge losses totaling over NT$80 billion after chip prices took a nosedive on oversupply

  • By Lisa Wang / STAFF REPORTER
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  Struggling Taiwanese chipmaker ProMOS Technologies Inc (茂德科技) may finally have a life raft to ride out the slump in the global semiconductor industry after ambitious Elpida Memory Inc, Japan’s biggest memory chipmaker, filed a consolidation plan with the Taiwanese government for a joint bailout with ProMOS on Thursday, and not a moment too soon.

  The filing gave ProMOS some breathing room to grapple with the severest downturn of the computer memory chip, or dynamic random access memory (DRAM), industry in history after a previous consolidation and bailout plan to acquire ProMOS submitted by Elpida and its local partner Powerchip Semiconductor Corp (力晶半導體) failed.

  But with the new consolidation plan under review, ProMOS is far from breathing easily.

  Its fate is in limbo after putting itself in the hands of a third party, especially the government, analysts said.

  “ProMOS is still in the midst of the crisis,” said Joyce Yang (楊雅欣), an analyst with market researcher DRAMeXchange Technology Inc (集邦科技), based in Taipei.

  There are several uncertain factors such as government policy that could derail the plans, Yang said. And DRAM players are fumbling over proper strategies to weather the rough time, Yang added.

  Efficiency could be what ProMOS needs the most now to stave off looming financial insolvency as pressure mounts for it to raise US$3.3 billion in market value by the maturity date of Feb. 14 to pay investors for their holdings of ProMOS corporate bonds.

  A major obstacle for ProMOS, or any other DRAM firm in financial woes, is the high barrier the government has established for companies seeking bailouts, Yang said.

  DRAM stocks have double in share price since the Taiwanese government pledged its support to the nation’s DRAM sector, which restored investor confidence, Yang said. Germany and South Korean governments then followed suit.

  “The proposal requires that some key goals are reached, such as helping local DRAM companies improve their technology and helping the industry move toward consolidation. The government hopes to seek the optimal solution,” said Chen Chao-yi (陳昭義), director-general of the Industrial Development Bureau.

  The government may set higher goals by helping local DRAM companies enhance competitiveness by forcing them and their overseas partners to improve technological cooperation as a condition for capital injection, said Liu Szu-ling (劉思良), who tracks the DRAM industry for Yuanta Securities (元大證券).

  “Or the government bailout will simply lengthen the time local DRAM makers are on the market,” Liu said. “This is almost mission impossible.”

  “Elpida is likely to be a proper partner for ProMOS, compared to the US memory chipmaker Micron Technology Inc, which tends to be protectionist in terms of exporting technologies,” Liu said.

  Taiwan’s big three DRAM makers suffered the worst of the industrial slump mainly because they have been relying on their partners to transfer next-generation technologies to make chips, unable to use cost-effective technologies to compete with rivals, Liu said.

  In the first three quarters of last year alone, local DRAM chipmakers reported huge losses totaling NT$80 billion after chip prices took a nosedive to well below their production cost on oversupply and the global economic downturn.

  The government has pooled NT$200 billion in funds to rescue local corporations, primarily to avoid a broad fallout of the nation’s DRAM industry, which could cause a serious ripple effect in the local economy.

  Taiwanese banks could face renewed financial problems due to defaults of massive bank loans by the nation’s major DRAM players of NT$420 billion, the government has warned.

  However, Powerchip, which still has the chance to submit a revised proposal, and Nanya Technology Corp (南亞科技), the nation’s second-largest DRAM maker, seem to be apprehensive about asking for emergency funds from the government.

  “We do not set any timetable,” Nanya spokesman Pai Pei-lin (白培霖) said on the phone.

  Nanya has been in talks with Micron to draft a bailout plan since last month.

  “They are reluctant to accept a bailout at the risk of losing management control. They are not giving up making turnaround plans on their own,” Yang said.

  In addition to a murky government rescue policy, it is another challenge to push the Elpida-ProMOS proposal through in the Legislature, Yang said.

  This alliance would only become reality after winning the endorsement of legislators, who are used to time-consuming reviews, she added.

  The current legislative session is scheduled to close on Tuesday, but lawmakers can vote for an extension.

  The government is also preparing for worst-case scenarios.

  “Things are becoming complicated. We may prepare new countermeasures for any new development,” Chen said.

  He declined to elaborate further.

  “We will let market mechanisms lead the way, if a single proposal fails to work,” Chen said. “We are not trying to keep all DRAM companies in the market.”

  The government and creditors of local DRAM companies may be able to manage the financial problems left by a company’s insolvency rather than three or four, Yang said.

  “But all in all they [local DRAM manufacturers] have got to start investing heavily for the future and for the advancement of technology. If they want to survive, there is no other way,” Liu said.
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