Fri, Feb 17, 2012 - Page 11 News List

Elpida bankruptcy may boost rivals, Fitch says

DOMINATION:Another researcher said the collapse of the chipmaker could lead to an oligopoly being formed in the industry, leaving PC OEMs with less buying power

By Kevin Chen  /  Staff Reporter

If Elpida Memory Inc does go bust, Fitch Ratings Ltd said it would help cut worldwide DRAM output and boost rivals’ profitability. However, DRAMeXchange has warned that such a collapse would have a severe impact on the world’s PC and DRAM industries.

The financial problems of Elpida, the world’s third-largest computer chipmaker after South Korea’s Samsung Electronics Co and Hynix Semiconductor Inc, re-emerged on Tuesday as the Japanese firm said in a statement that “material doubts about its assumed going concerns have been found.”

Elpida’s remark indicated increased uncertainty about its operational viability because the company has not yet secured financing for an upcoming debt repayment — it faces an April deadline to repay a ¥40 billion (US$507 million) government loan and a ¥80 billion short-term bank loan.

Fitch said in a statement yesterday that should the Japanese government decide to step in and support Elpida, following the example of Hynix by the Korean government a few years ago, the persistently negative environment facing the world’s DRAM chipmakers would remain in the short term.

“With the exception of Samsung Electronics, global DRAM manufactures all recorded operating losses during the second half of 2011 due to a substantial fall in chip prices,” Fitch said.

Hynix recorded a minus-7 percent operating margin in the fourth quarter last year, while Elpida’s operating margin was minus-73 percent. Nanya Technology Corp (南亞科技), Taiwan’s biggest PC DRAM chipmaker, last month posted a loss of NT$10.99 billion (US$371 million) for the last quarter, pushing its finances into the red for the eighth consecutive quarter.

“At the current juncture, we believe industry profitability will only improve if the manufacturers are prepared to cut back on output levels. In view of their ongoing losses, Japanese and Taiwanese manufacturers may have no choice but to reduce their output,” the ratings agency said, citing the fact that DRAM chip spot prices have stabilized this month.

However, DRAMeXchange, a research division of Taipei-based TrendForce Corp (集邦科技), said in a report issued on Wednesday that should the Japanese government not bail out Elpida, an oligopoly may be formed in the global DRAM industry.

The researcher said Elpida, unlike German chipmaker Qimonda AG that went bankrupt in 2009, deserved assistance from either the Japanese government, creditors or even its competitors such as Toshiba Corp and Micron Technology Inc, because the company’s process technology and product quality have long been acknowledged globally.

If the company fails to secure financing by the end of next month and seeks bankruptcy protection, “DRAM market share will be even more unbalanced, dominated by makers with the leading technology,” DRAMeXchange said in the report.

“The DRAM market would move one step closer toward an oligopolistic state, thereby leaving PC OEMs [original equipment manufacturers] with less buying power,” it said.

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