DRAM chipmaker Nanya Technology Corp (南亞科技) announced a multiyear technology upgrade plan worth up to NT$40 billion (US$1.28 billion) earlier this month, marking the chipmaker’s latest effort to find an optimal formula for sustaining profitability.
Even though some analysts consider such an investment on upgraded technology a must for Nanya Technology’s long-term growth, the company said that it took some time for its management to get approval from major shareholders, as high industrial volatility and intensive capital spending still concern shareholders.
“This is an investment that Nanya Technology has to make to upgrade to 20-nanometer [nm] technology, or it will be difficult for the firm to make profits within two years,” TrendForce Corp (集邦科技) analyst Avril Wu (吳雅婷) said.
Wu added that she is positive about the investment plan compromise, as Nanya Technology originally planned to pour NT$60 billion into the latest technology upgrade.
The planned expenditure would mark the firm’s first significant investment in about eight years since emerging from financial woes amid a slump driven by overcapacity.
Nanya Technology reported a record-high profit of NT$28.24 billion for last year and had accumulated NT$6.27 billion in free cash flow as of Dec. 31 last year.
Last year’s strong financial performance reinforces the company’s confidence that the strategy of diversifying its chip portfolios to non-PC segments is a proper direction.
The successful turnaround sparked the resumption of investment interest from some brokerages, including Morgan Stanley and SinoPac Securities Co (永豐證券).
Morgan Stanley gave a “buy” rating on the stock upon its initial coverage.
However, product diversification is not enough for Nanya Technology and it needs advanced technologies to support future growth.
“Within two to three years, more than 80 percent of DRAM will be low-power DDR4 or [standard] DDR4. Without the [20nm] technology, we will lose market [competitiveness],” company chairman Charles Kau (高啟全) said.
DESIGN-DRIVEN
“With the technology, Nanya Technology aims to become a company offering well-designed products, rather than a manufacturing-centric company. We want to make stable profits by offering chips with good design,” Kau added.
The 20nm technology will help Nanya Technology enrich its product lineup from PC DRAM chips and niche DRAM chips for vehicles and networking equipment to TVs and mobile phones, as new low-power DDR4 chips are 30 percent more energy efficient than DDR4 chips made on existing 30nm technology, Nanya Technology said.
Growth in consumer electronics will be the strongest, making the sector Nanya Technology’s target, it said.
The number of DRAM chips in mobile phones, TVs, game consoles and other consumer electronics has quadrupled over the past five years, and the annual compound growth rate will remain a double-digit percentage over the next few years, company vice president Lee Pei-ing (李培瑛) said.
“We are not competing with Samsung [for Apple orders],” Lee said. “We are targeting the consumer electronics market... In this regard, we have built a good presence in China [with 25 percent market share].”
BOARD BACKING
Earlier this month, Nanya Technology’s board approved the NT$40 billion expenditure on migrating half of its capacity to make DRAM chips on advanced 20nm technology from existing 30nm technology in the next two to three years, targeting fast-growing demand for chips used in consumer electronics, such as mobile phones and TVs.
Nanya Technology plans to start shipping a small volume of 20nm chips at the end of next year, using licensed technology from US memory chipmaker Micron Technology Inc.
That would make Nanya Technology the third supplier of DDR4 after Samsung and Micron.
CAUTIOUS SHAREHOLDERS
Considering the size of the investment, Kau said that the management has spent some time persuading the company’s major shareholders from Formosa Group (台塑集團) to support the plan.
The group holds an 86 percent share of Nanya Technology via four of its major subsidiaries.
To minimize risk, the chipmaker plans to raise half of the funding needed for the conversion by issuing new shares to new strategic partners.
US DRAM module maker Kingston Technology Corp and Japan’s Toshiba Corp are seen as being high on Nanya Technology’s shortlist of preferred partners.
To shore up investor confidence, Kau said he planned to buy Nanya Technology shares after selling half of its holdings of Inotera Memories Inc (華亞科技), a DRAM venture between Micron and Nanya Technology.
Kau also serves as chairman of Inotera.
Last month, Kau submitted an application to the Taiwan Stock Exchange to sell 3.7 million Inotera shares before April 14, saying that he would use the proceeds to buy Nanya Technology shares.
MARKET REACTION
Nanya Technology shares edged 0.26 percent lower to NT$78.1 in Taipei trading yesterday from NT$78.3 on March 12, when the chipmaker unveiled the new investment plan.
“Most investors will take a wait-and-see attitude about this investment, as there is the worry that demand could falter next year,” Wu said.
Wu did not expect demand to plunge next year in the same way that it did before, as PC DRAM chips account only for a small portion of overall DRAM production.
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