Not a single chipmaker could have expected the sector’s recovery to be so short-lived. The latest industrial slump comes as a devastating blow to local DRAM makers, who have scarcely recovered from the last downturn and are less than halfway to diversifying their volatile business. This time, they have only themselves to count on as they try to ride out the crisis — the government has not even tried to throw a liferaft, as it did last time.
“The government will not inject any capital [into any company],” Minister of Economic Affairs Shih Yen-hsiang (施顏祥) said last week in response to the announcement by debt-ridden ProMOS Technologies that it planned to axe share capital by 85 percent as part of a last-ditch attempt to overhaul its finances.
ProMOS also plans to sell 3.5 billion new shares to repay NT$57 billion (US$1.98 billion) in loans and to gain strategic investors.
This was a U-turn by the government after its efforts to lift DRAM firms out of financial trouble in 2008 turned into a fiasco. In March last year, the Ministry of Economic Affairs’ major program to bailout DRAM companies was, after prolonged debate, trashed as legislators voted against channeling NT$3 billion into Taiwan Memory Co (TMC). The vote came six months after the establishment of TMC and at a time when economic recovery appeared to be setting in.
TMC was originally designed as a cure-all for industry overcapacity and a lack of technological capabilities. The idea was that TMC would consolidate the nation’s memory-chip makers and improve their technological ability by teaming up with foreign chipmakers, including Japan’s biggest DRAM firm, Elpida Memory.
However, the government’s inefficiency and lack of determination stifled the small chance DRAM makers had to resolve the fundamental problems of overcapacity and weakness in developing technologies. Only a third party like TMC would have had a chance to rearrange capacities of local chipmakers to prevent oversupply from hurting chip prices because no single firm was strong enough to propel a merger on its own.
Even now, former TMC head John Hsuan (宣明智) and David Sun (孫大衛), co-founder of the world’s biggest independent DRAM module maker, Kingston Technology, still think that consolidation was one of the most effective approaches to saving Taiwanese DRAM companies. Kingston played a crucial role in providing financial support to Powerchip Technology. Powerchip chairman Frank Huang (黃崇仁) has said that Sun contributed much more than the government toward saving the nation’s DRAM sector. Powerchip now only makes DRAM chips for Elpida.
What a pity that the only chance to push for industry consolidation vaporized so quickly. With bank-loan rollovers and a short price rebound, the chipmakers got their breath back, but not for long.
Since 2008, ProMOS has not turned a profit. As demand shrank for notebook computers, the company has piled up losses of NT$83.56 billion between 2007 and the first quarter of this year.
Now the chipmaker is facing imminent default again, if creditor banks — mostly state-owned lenders such as the Bank of Taiwan — turn down its idea of offering 1.5 billion new shares to pay back part of its debts. Those banks have almost given up hope of restoring the company’s credit, saying they were in a better position now to absorb the bad loans than they were two years ago. In 2009, the banks granted NT$3 billion in fresh loans, betting that ProMOS would make a turnaround.
ProMOS disappointed its creditors. However, it pledged that it would not seek insolvency protection and would strive to find a way to survive.
ProMOS appears to need a miracle to survive. Nanya Technology, the nation’s top DRAM maker, could soon be the only Taiwanese company left making DRAM chips. It’s unprofitable, but it has the financial support of parent Formosa Plastics, one of the nation’s biggest conglomerates.
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