The Ministry of Economic Affairs’ recent rejection of two industry consolidation proposals by local computer memory chipmakers raised the question of what role the government should play in helping the country’s struggling DRAM companies.
Given their mounting debt and the uncertain state of the sector, it has become clear that credit banks are unlikely to lend money to local DRAM companies. On the other hand, the government is also hesitant to inject funds into local DRAM companies that cannot gain access to foreign partners’ technological know-how and develop homegrown technology in Taiwan.
ProMOS faces problems repaying US$330 million in overseas convertible bonds that will mature on Feb. 14, only two weeks after the Lunar New Year holiday.
To rescue ProMOS, the Chinese-language Economic Daily News said in a front-page story published on Thursday that credit banks might pump cash into the money-losing company in the form of loans, later converting the loans into shares in the firm.
While this idea gained inspiration from the comeback of Hynix Semiconductor Inc in South Korea a few years ago, the possibility of its success in Taiwan is questionable because ProMOS in no way looks like Hynix, either in terms of production scale or technological strength.
Moreover, this loan-equity conversion will still be subject to the approval of bank shareholders and financial regulators, and that is never an easy job.
On Friday, the director-general of the Industrial Development Bureau — a government agency that is in charge of reviewing DRAM companies’ industry consolidation proposals in exchange for a government bailout — told reporters that the government did not want any local DRAM companies to fail.
The official said that to maximize the effectiveness of government aid, it would like to see local DRAM companies consolidate into one to two groups with independent technology.
Unfortunately, the proposal’s rejection suggested local DRAM companies were experiencing difficulty convincing foreign partners to help develop homegrown technology in Taiwan. The chairman of Powerchip Semiconductor Corp said bluntly that an immediate cash injection was what the companies needed most, with industry consolidation and technological independence being a long-term goal.
Clearly, local DRAM companies desperately need cash. But that money will not come from private investors as long as the companies’ losses continue to grow. Therefore, the government seems to have little option but to play the role of savior.
The problem is whether the government’s goal is to protect the industry or save individual companies. There are reasons to question whether it is a waste of taxpayers’ money if the individual companies receiving government funds are doomed to fail with or without a bailout.
If the collapse of individual companies benefits the industry as a whole, then let it be so. If the government’s bailout effort only perpetuates the sector’s long-term weakness, this effort should be stopped now.
One way or another, the government should prepare for a possible collapse and try to reduce any negative impact while beefing up investors’ confidence.
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