Mon, Aug 10, 2009 - Page 12 News List

ANALYSIS: Shifts in local DRAM landscape begin

BATTLE FOR SURVIVAL: Now that TMC has begun operation and Nanya will seek government funding, remaining DRAM players will need to choose sides


The government’s efforts to revitalize Taiwan’s ailing but crucial computer memory chip sector made significant progress after ­government-backed Taiwan Memory Co (TMC, 台灣創新記憶體公司) started operations, putting pressure on local rivals to fend off growing competition.

The launch of TMC, eight months after the government unveiled its plan to revamp the local dynamic random access memory (DRAM) sector, has laid to rest speculation that the government’s consolidation plan would be dropped.

The speculation came because most local DRAM companies have briefly escaped the worst of the down cycle, benefiting from nascent recovery. Now that memory chipmakers have more leeway to fight their way out of the woods, they could become unwilling to relinquish control over their companies.

“No doubt, TMC is starting to play a greater role in reinventing Taiwan’s DRAM sector by integrating idle resources,” said Kenneth Lee (李克揚), a semiconductor analyst with Fubon Securities Investment Services Co (富邦投顧). “I don’t think the recent price rebound will change this situation because rebounding prices still haven’t been able to stem the bleeding.”

Over the past two years, the nation’s two largest DRAM companies, Nanya Technology Corp (南亞科技) and Powerchip Semiconductor Corp (力晶半導體), have lost a combined NT$119.05 billion (US$3.63 billion) and are expected to stay in the red this year.

Smaller makers like ProMOS Technologies Inc (茂德科技) and Winbond Electronics Corp (華邦電子) have come to the realization that this is a battle for survival and they need to let go of their aversion to yielding turf this time, Lee said.

TMC formally began operations on July 31 after the Hsinchu-based company registered with the Ministry of Economic Affairs’ commerce department with an initial capital of NT$500,000. The company, chaired by semiconductor veteran John Hsuan (宣明智), has planned to ask for less than NT$10 billion in capital injection from the government.

When Hsuan unveiled his ­blueprint for TMC in April, he defined it as a chip designer focusing on technological development and licensing its patents to manufacturing partners in exchange for their production capacity.

By giving up the normal merger and acquisition approach, Hsuan hopes this unusual business model can achieve the government’s goal of securing advanced technologies for local DRAM players and divert overcapacity risk, which is the main reason behind the industry’s recent crunch.

Before TMC came into existence, some of TMC’s local competitors sneered at Hsuan’s idea of creating a DRAM designer.

In March, Powerchip chairman Frank Huang (黃崇仁) said TMC’s business model was unfit for the industry and could fail before it even began to exert influence.

“Capacity matters the most in DRAM industry. I cannot see any company without plants able to compete with existing players,” Huang said at the time.

Huang was not alone in casting doubt on TMC’s business model. Nanya spokesman Pai Pei-lin (白培霖) said in June that the DRAM industry is different from the chip designing industry.

“The DRAM industry needs ­economic-scale capacity to support its ability to make profits,” Pai said.

However, Liu Szu-liang (劉思良), an analyst with Yuanta Securities Investment Consulting (元大投顧), said the establishment of TMC is probably “the last hope to avert the fall of Taiwan’s DRAM sector.”

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