The financial pressure on local dynamic random access memory (DRAM) chipmakers appears to be finally easing as the memory chip industry slowly emerges from its longest downturn since 2007. However, Washington’s recent move has again injected a sense of uncertainty into the still shaky chipmaking business.
On Wednesday, Bloomberg News reported on its Web site that US Trade Representative Ron Kirk had written Republican Senator Mike Crapo a letter saying he would use WTO sessions to press Japan and Taiwan over subsidies to Elpida Memory Inc in response to complaints from US chipmaker Micron Technology Inc.
The unexpected move has thrown a spanner into Taiwan Memory Co’s (TMC) future technology cooperation with Elpida, which the government-backed company chose six months ago as its technology partner. TMC also plans to make a cash investment for a 9.5 percent stake in Japan’s biggest memory chipmaker.
The Ministry of Economic Affairs said on Friday that the TMC’s planned investment in Elpida is a strategic move for international collaboration that does not violate WTO rules on fair competition. The government should bear in mind, however, the WTO’s ruling against the South Korean government’s financial support for Hynix Semiconductor Inc several years ago, which has resulted in sizable punitive tariffs on Hynix DRAM chip sales in the US, the EU and Japan since 2003.
During the industry’s worst slump in the past two years, DRAM companies sought much-needed capital from either private investors or governments to make ends meet. A WTO ruling against government subsidies would reduce the chances for Taiwanese companies to obtain government money to support investment in advanced processing technology to enable them to catch up with their stronger foreign rivals.
The government has already said it would not use taxpayers’ money to bail out private companies. Its solution was to back the establishment of TMC and focus on forming partnerships with leading foreign chipmakers to help nurture DRAM technology development here.
The government’s plan to restructure the troubled industry is well-intentioned, but it failed to get any player to exit the business. Therefore, as the industry starts bottoming out, Taiwan has a new kid on the block — TMC — while the six existing DRAM companies remain what they are, including the weaker ones.
Micron’s complaint of being severely disadvantaged by its subsidized competitors is clearly a corporate strategy to ward off potential threats from rivals. Samsung Electronics Co, the world’s largest memory chipmaker, is likely to benefit from a standoff between Micron and Elpida, while TMC and other Taiwanese companies will find it even more difficult to seek government funding to buy new manufacturing equipment to support their transition to more advanced and higher-margin chips.
The US government’s involvement has raised the stakes in the dispute, and Taiwan needs to carefully maneuver in seeking technology alliances with other countries. As such, while it is clear that the cyclical DRAM business is now on a recovery path thanks to solid chip demand because of expanding applications in consumer electronics, the future of Taiwan’s quest to nurture home-grown technology — instead of paying royalties to foreign companies — looks bumpy.
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