A recent decline in the market share of Taiwanese PC memory chipmakers is pushing Taiwan into an even more marginal role in the global memory chip industry. This could be the consequence of the government’s scrapping a NT$5 billion (US$170 million) bailout plan in late 2009 for debt-ridden memory chip companies. Even though the bailout was not huge compared with the tens of billions of NT dollars needed to invest in technological upgrades, every bit helps when helping cash-strapped chipmakers catch up to their rivals.
Over the past year, major Taiwanese manufacturers of PC memory chips, or dynamic random access (DRAM) chips, saw their global market share shrink to a combined 9.3 percent in the fourth quarter, down from 10.6 percent in the third quarter of 2009, IHS iSuppli’s statistics showed. IHS iSuppli said it expected a major shakeup in the industry by year-end because of the smaller role played by Taiwanese firms.
A government plan to revamp Taiwan’s DRAM industry by building a stronger DRAM entity — Taiwan Memory Co — is not guaranteed success. This is mainly because of the original blueprint, which envisioned combining massive capacities and advanced technologies under Taiwan Memory by integrating Taiwan’s five major memory chip companies and bringing in new strategic partner, Elpida Memory, by buying a stake in the Japanese firm. However, the plan at least provided the chance of survival at the time. After the bailout was scrapped, however, that chance evaporated. Now, it is time to face the music.
Last quarter, a sooner-than-expected industrial downturn provided a wake-up call to local DRAM firms, dealing a major blow to their dreams of making big money through corporate PC replacements. Corporate PC renewal did not provide the demand “tsunami” they were expecting given the last six years without large-scale PC upgrades. Demand only trickled in because corporate executives were cautious about spending amid the lukewarm economic recovery in the US and debt-ridden Europe.
Local DRAM players are taking action to solve their vulnerability to industrial volatility because of their reliance on one product — PC memory chips. They have worked on the issue over the past few years, expanding their product portfolios into non-PC memory business, which is dominated by South Korean and Japanese companies.
Nanya Technology Corp, the nation’s top DRAM maker, for example, posted NT$10.12 billion in losses last quarter after prices tumbled 50 percent, bringing its total losses over the past four years to NT$83.54 billion. With parent company Formosa Group’s financial support, Nanya is the only Taiwanese DRAM company that can afford pricey technological conversions and migrations, which is key to keeping costs and price down.
However, even Nanya is shifting away from DRAM business. Last month, Nanya said it would boost its non-PC revenue share from about 35 percent to 40 percent by the end of this year by producing more of the memory chips used in servers and smartphones.
Powerchip Technology Corp and ProMOS Technologies are adopting similar strategies.
Powerchip said it would phase out manufacturing own-brand DRAM chips. It is adopting a new strategy, making DRAM chips only for Elpida, its sole technological supporter, as part of its greater efforts to enlarge its contract chip manufacturing business. It will also boost production of flash memory chips and memory chips used in handheld devices. By the end of the year, DRAM business will account for only half of its total revenues instead of more than 80 percent currently.
ProMOS is taking a similar approach in reshaping its business with technological changes and DRAM purchase contracts from Elpida.
As Elpida takes control of selling DRAM chips manufactured by Powerchip and ProMOS, and Nanya cuts its DRAM output, it is clear that Taiwan will soon fall below the radar among DRAM industry watchers.