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Government mulls aid for chipmakers

The government is considering buying stakes or extending funds to help struggling memory chipmakers amid the worst industry slump in history, a senior official said yesterday.

The comment boosted confidence in the dynamic random access memory (DRAM) sector, with DRAM stocks rising more than 6 percent.

“We will not rule out [extending financial support] in the form of loans or buying stakes via a government fund,” said Chen Chao-yih (陳昭義), director-general of the Industrial Development Bureau.

However, it “is unlikely that the government would inject fresh capital into local DRAM companies,” Chen said.

Chen is a member of the government’s special task force set up in the middle of last month to help DRAM companies, which are struggling to survive after a nearly two-year industry downturn.

Financially strapped ProMOS Technologies Inc (茂德科技), the first DRAM maker to seek help from the government, said in a filing to the stock exchange yesterday that it would keep an open mind about any government suggestions.

The chipmaker also dismissed speculation that it plans to sever its long-term partnership with South Korea’s Hynix Semiconductor Inc and turn to Japan’s Elpida Memory Inc for future cooperation under the government’s pressure.

The statement came in the wake of a report by the Chinese-language Commercial Times newspaper yesterday that ProMOS was forced to choose between the US DRAM company Micron Technology Inc and Elpida, the respective technology partners of local DRAM makers Nanya Technology Corp (南亞科技) and Powerchip Semiconductor Corp (力晶半導體).

The Economic Daily News, another Chinese-language daily, carried a similar report yesterday saying ProMOS had asked for financial assistance from the government and chances were high that it would seek an alliance with Elpida.

“The government hopes local firms will enhance their competitiveness because of the industry shakeup. However, we did not force them to take sides. We respect the market mechanism,” Chen said.

In the third quarter alone, the nation’s three biggest chipmakers — Powerchip, Nanya Technology and Powerchip — posted losses totaling NT$32.58 billion (US$974 million) as a supply glut and sagging demand drove prices down another 40 percent after an 85 percent decline last year.

The government’s move is aimed at reducing unemployment and spurring economic growth, but some analysts, including Nomura Securities Co’s Rick Hsu (徐稦成), expressed doubt that the maneuver would help the sector.

“That [the government’s help] will only lengthen the time they stay on the market,” said Hsu, a senior semiconductor analyst. “There are too many DRAM companies in the market. To boost the industry’s health, they should consolidate.”

The major problem is Taiwanese DRAM companies rely on their foreign partners for advanced technologies, Hsu said.

The government might be disappointed to learn that US and Japanese firms might not fully transfer their technologies to local firms to enable them to develop advanced technologies, Hsu said.

SinoPac Securities Corp (永豐金證券) said in a client note yesterday that a partnership between ProMOS and Elpida would have a limited impact on the DRAM market in the short term.

“From a medium to long-term perspective, ProMOS is likely to temporarily ride out the current difficulty by accepting the government’s financial assistance,” the note said. “But hopes that the DRAM industry order can return to a normal condition will hinge on whether Samsung Electronics Co will cut its output.”

Samsung, the world’s largest maker of memory chips, said on Monday that the ongoing glut in the memory chip market had worsened and made it difficult for the firm to earn a profit from the product, Bloomberg reported, citing executive vice president Chu Woo-sik.

ADDITIONAL REPORTING BY KEVIN CHEN
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