Local memory chipmakers took a drubbing on Friday after speculation that the government’s semiconductor czar for the struggling dynamic random access memory (DRAM) industry had offered to resign.
While both John Hsuan (宣明智), designated chief of Taiwan Memory Co (TMC), and Minister of Economic Affairs Yiin Chii-ming (尹啟銘) immediately denied the rumors, the incident highlights the fact that after only seven weeks on the job Hsuan feels frustrated by skepticism of TMC’s business model and its role in restructuring the local DRAM industry.
Rumors that Hsuan would quit began circulating as the legislature’s Economics Committee passed a motion on April 15 asking the Ministry of Economic Affairs to report on its policy relating to the DRAM industry and TMC’s business plan.
Lawmakers have criticized TMC, saying the company was originally to play a supportive role in the industry, but because it had focused on restructuring rather than bailing out cash-strapped chipmakers, they believed the company would become a potential competitor to existing companies.
The cold shoulder that leading local DRAM players such as Powerchip Semiconductor Corp and Nanya Technology Corp have presented to TMC therefore comes as a surprise to no one.
On Friday, a report from the legislature’s budget center regarding the DRAM rescue plan further fortified lawmakers’ suspicions about TMC.
The report said the government should discontinue plans to set up the company. It pictured TMC as a “vulture company” that would prey on weaker players during downturns. It also criticized Hsuan’s plan to make TMC a fabless design house that outsources manufacturing to local DRAM makers, saying it would not solve the current oversupply problem or help consolidate the ailing DRAM sector, but instead intensify the already fierce competition in the sector.
The report also suggested TMC would not qualify to obtain financing from the Cabinet’s National Development Fund as stipulated by the Act for Upgrading Industries (促進產業升級條例), because it would not help upgrade the local DRAM sector or change its industry structure. If the government were to invest in TMC as planned, the report said the money would first need to be approved by lawmakers.
Should Hsuan quit the job and the government scrap TMC, there would be no loss in government funds. The government would also save taxpayer money because major DRAM companies have started to see chip prices rebound from record lows following production cuts.
With TMC’s plans to not merge local players, existing companies are coming up with their own rescue plans by either securing new funds, extending bank loans or strengthening cooperation with foreign technology partners.
What really affected the DRAM industry is that the government missed the opportunity to consolidate the troubled industry in the fourth quarter of last year, when companies’ financial problems began appearing. If TMC failed to work as promised, will the government lose another opportunity to enhance competitiveness in the local sector while South Korean rivals Samsung Electronics Co and Hynix Semiconductor Inc benefit from Taiwan’s troubles?
The signs of Hsuan’s frustration indicate that the government’s effort to narrow the gap between Taiwanese DRAM companies and their competitors seems to have hit a bump in the road.
Speculation over his resignation also suggests that the government’s rescue plans have so far resulted in little more than a series of talks, including TMC’s choosing of Japan’s Elpida Memory Inc as its technology partner on April 1, which both sides have yet to formally agree on.
The government and TMC must either move quickly or back off and allow time to tell whether the industry’s development is on the right track.
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