Mosel Vitelic eyes merger with Infineon

Mosel Vitelic Inc (茂矽電子), an unprofitable Taiwanese maker of memory chips, said it's in merger talks with German partner Infineon Technologies AG and is also considering linkups with money-losing local rivals as it tries to overcome the worst slump in industry history.

"Something has to be done to improve overall efficiency," Mosel Vice President Thomas Chang (張東隆) said in an interview, confirming for the first time negotiations with Infineon, a unit of Siemens AG. "We've had talks about whether we should merge." Mosel isn't alone in trying to shield itself from a global slump that's driven prices to half of production costs and steeped Taiwan's five memory-chip makers in US$576 million of red ink in the third quarter.

Winbond Electronics Corp (華邦電子), a Mosel rival that's linked to Japanese chipmaker Toshiba Corp and reported a NT$4 billion (US$116 million) loss in the third quarter, said it will announce a partnership with an overseas company at 3pm today.

"Our chairman [Arthur Chiao, 焦廷均] will make a strong statement about our future strategy at an investor's conference [today]," Winbond spokesman Mike Liu (劉重光) said in an interview. "We will have more news about another big foreign company." He declined to identify the new partner or state how the new partnership will affect its current alliance with Toshiba.

Toshiba and NEC Corp, among other major chipmakers, have idled plants and cut thousands of jobs. Mergers are viewed as a way of stanching losses, which will probably continue through the first half next year, some investors said.

"From a shareholder's point of view, it should be like this," Pedro Tai, who counts Taiwan companies among the US$2.5 billion in shares he helps manage at HSBC Asset Management Taiwan, said of mergers.

While Tai said he doesn't plan to buy Mosel shares, he may increase his stake in ProMOS (茂德), the venture between Infineon and Mosel.

Infineon aside, Chang didn't identify other possible merger partners for Mosel. In addition to mergers, he said, Mosel may decide to stop making standard memory chips in favor of higher-value specialized chips for computers and mobile phones.

Taiwan chipmakers, which depend on foreign partners for development costs, will need to merge to improve competitiveness, some investors said.

Any merger between Mosel and Infineon will probably have to wait until the German company completes talks with Toshiba on a possible merger, and that could take months, Chang said.

Infineon, the fourth-largest supplier of memory chips, has about a 10th of the world market. That includes chips manufactured by its venture with Mosel.

To compete with larger rivals such as Samsung Electronics Co and Hynix Semiconductor Inc of Korea, and Micron Technology Inc of the US, Infineon needs market share of about 20 percent, according to analysts.

The German company, which posted a third-quarter loss of 371 million euros (US$332 million) in the third quarter, plans to shed 5,000 jobs. Mosel reported a loss of NT$6.2 billion (US$180 million) in the latest quarter and has announced no layoff plans.

Infineon, Toshiba and Mosel are loosely linked under an alliance with International Business Machines Corp (IBM) to develop so-called "trench" technology used to etch deeper troughs that connect more layers of silicon on a chip.

The merger talks come as Toshiba is poised to throw in the towel on trench technology.