NEC Corp and Hitachi Ltd, Japan's second and third-largest chipmakers, will invest a combined Japanese Yen 44 billion (US$365 million) to increase production of memory chips at their joint venture and catch up with rivals.
The companies, which have already invested Japanese Yen 52 billion in their unprofitable venture Elpida Memory Inc, will spend the funds by March, NEC spokesman Makoto Miyakawa and Hitachi spokesman Yukiaki Ina said. Elpida will also seek outside investors, Ina said.
NEC and Hitachi posted record losses last fiscal year mainly because of plunging prices of dynamic random-access memory chips.
The companies are buying the memory-chip business of Mitsubishi Electric Corp to become the world's No. 4 DRAM maker. To compete with bigger rivals such as Samsung Electronics Co, Elpida needs to expand capacity to achieve economies of scale, analysts said.
"Elpida really needs money to tool up its factory," said Yoshihide Ohtake, an analyst at Shinko Securities Co, who rates shares of NEC "neutral minus" and Hitachi "neutral." "Elpida will be dead without cash."
Elpida President Yukio Sakamoto earlier this month said the company has held talks with as many as three companies -- chipmakers and chip users -- to ask for equity investment.
The memory-chip venture will have capacity to produce 3,000 sheets of silicon wafers measuring 300mm in diameter a month after the Japanese Yen 44 billion investment. Elpida will need more investment to close the gap with competitors, Sakomoto said.
"Three thousand sheets is way too little to compete with rivals in costs," Sakamoto said in a press conference on Nov. 1, when he assumed his position as president of the venture. Sakamoto said he wants to increase monthly production capacity to at least 10,000 sheets and ideally to 20,000 sheets.
Global chipmakers are racing to build plants using 300mm wafers, larger than conventional 200mm wafers. Increasing wafer size reduces manufacturing costs by boosting the number of chips that can be cut from a single piece of wafer. A factory compatible with 300mm wafers typically costs as much as US$3 billion.
All DRAM makers except for Samsung Electronics posted losses last year, the worst year ever for the industry amid a slump in personal-computer sales. Global DRAM chip sales plunged 62 percent to US$11.9 billion last year from US$31.6 billion in 2000, according to market researcher Dataquest, a unit of Gartner Inc.
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