On October 2010 Elpida president Yukio Sakamoto stated that Elpida Memory was considering buying shares of Taiwanese chipmakers to counter competition from Samsung Electronics. Sakamoto identified Powerchip, ProMOS and Winbond Electronics among possible targets. Sakamoto also said that he was also open to tie-ups with Nanya Technology and subsidiary Inotera Memories. “It‟s almost impossible for the Taiwanese to survive by themselves,” Sakamoto was quoted by Bloomberg. “Without doing something, it will be tough for us to survive, too. We don‟t have the scale.” 2.
Soon after Taiwanese periodical Digitimes, citing industry sources, reported that Elpida Memory had plotted a three-year plan to raise its competitiveness in the global DRAM market and counter the threat from Samsung Electronics which involved deepening alliances with Taiwanese companies. Elpida‟s plan reportedly involved deepening its existing partnership with ProMOS Technologies in 2011 and possibly other Taiwan-based fellow companies to jointly set up a manufacturing spot in China in 2012. 46.
In December the speculation on Elpida‟s Taiwan moves seemed to become reality as Elpida agreed to let ProMos use the company's 63nm stack process technology for its own-brand niche DRAM products. 47. Elpida at around the same time obtained approval from the Industrial Development Bureau under the Ministry of Economic Affairs of Taiwan to list Taiwan Depository Receipts in the Taiwan Stock Exchange.
48. William Wang of Fubon stated in a report dated February 25, 2011 that Elpida‟s Taiwan listing was an attempt to facilitate further tie ups with its Taiwanese peers. In his report William stated that external financing was clearly not the main purpose of the TDR since the company‟s financial condition was improving. In William‟s view
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the goals of the listing were threefold: 1) raising the visibility in Taiwan to strengthen ties with Taiwan‟s government and the capital market, 2) facilitating inroads into Rexchip‟s oncoming public listing (Elpida owns 65% of Rexchip‟s shares), and 3) further strengthening ties with Taiwan‟s DRAM makers to secure capacity. Mr. Wang added that Elpida needs the capacity of Taiwan‟s DRAM makers as much as
Taiwan‟s DRAM makers need Elpida‟s technology. The ties with Taiwan makers enable Elpida to secure capacity without raising capex, thereby reducing operating leverage and financing needs. 14.
“He‟s casting a very wide net, but he may only catch a small fish — or maybe no fish at all,” Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc in Tokyo was quoted by Bloomberg on Sakamoto‟s broad plans of deepening alliances with Taiwan peers. “Sakamoto-san is very outspoken‟ but what he says and what the company achieves aren‟t always the same.” 2.
Discussion Questions
-Why did Taiwan Memory Company fail?
- What are the biggest challenges Taiwan DRAM firms face?
- What are the objectives/goals of each party? Shared goals?
-If you were the CEO of Elpida what would you propose to Taiwanese DRAM makers?
-Should Taiwanese DRAM players do like Winbond and leave the DRAM industry or stay and seek alliances?
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Appendix
Woori reasons for continued Technological lag
“Technology migration is growing increasingly difficult in the semiconductor memory industry, thereby driving up costs, for the following two reasons.
1) Semiconductor memory makers are focusing on upgrading their existing lines through technology migration rather than directly expanding output capacity by building new lines.
2) Compared to the past, more time and expense is being spent on adopting and stabilizing new technology. In particular, the second reason indicates that technology migration efficiency is weakening compared to the past. The graph below compares the annual facility investment amount and wafer input increase of tier-1 companies (Samsung Electronics and Hynix). The graph shows the increasing amount of facility investment that is required to achieve a wafer unit input increase. This necessity for this facility investment is resulting in greater time being needed to recover the same amount of wafer input. With their weaker funding capacity, tier-2 companies require significantly more time to achieve wafer unit input increase. 45.
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In addition, the preparation time for technology migration is stretching due to tight equipment supply and the ever-expanding sophistication level of the required
technology. The table below describes the immersion equipment supply and demand status by company, illustrating that tier-2 companies are still lagging behind tier-1 companies in acquiring relevant equipment. If such a trend continues, the price gap between tier-1 and tier-2 companies is unlikely to narrow. The use of immersion equipment is limited if the technology node reaches 20nm, which in turn will likely result in the need for a new type of equipment called extreme ultra-violet lithography (EUV). As the relevant investment amount is continuing to increase, the possibility of further widening in the gap between tier-1 and tier-2 companies cannot be ruled out.”
45.
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Selected Nanya Technology Financials
Million NT$ 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 1Q08 Net Sales 11,790 14916 15718 14121 16690 11509 8085 6172 6134 11504 9530 9143 COGS 17737 14000 14128 13931 14711 12876 11882 13161 10715 14808 12983 13595 SG&A
Expenses 755 457 388 399 705 511 604 486 101 583 575 670
Operating
Income -8680 -1373 -516 -1225 343 -2684 -5232 -8347 -6037 -5687 -5866 -6525 Non-operating
Income -1495 -894 -570 -400 -145 -1215 -1309 -2166 -5849 -3082 -1426 -2258 Income Before
Tax -10175 -2267 -1086 -1625 199 -3899 -6541 -10513 -11886 -8769 -7292 -8783 Income Tax
Expense 21 0 0 0 0 0 0 0 0 0 0 0
Net Income -10153 -2267 -1086 -1625 199 -3899 -6541 -10513 -11887 -8769 -7292 -8783
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Selected Hynix Semiconductor Financials
Billion KRW 4Q10 3Q10 2Q10 1Q10 4Q09 3Q09 2Q09 1Q09 4Q08 3Q08 2Q08 1Q08 Revenues 2748 3250 3279 2821 2799 2118 1676 1313 1512 1839 1864 1604 COGS 1994 1849 1821 1656 1700 1540 1546 1494 1955 1960 1672 1777 SG&A
Expenses 337 390 412 367 391 368 341 333 339 343 364 309
Operating
Income 418 1011 1045 799 708 209 -211 -515 -782 -465 -172 -482 Non-operating
Income -239 40 -408 30 -97 35 163 -663 -565 -1215 -540 -194 Earnings Before
Tax 178 1052 637 829 611 244 -48 -1178 -1347 -1680 -712 -676 Income Tax
Expense 68 -8 -28 7 -45 -2 10 0 -20 -10 -1 0
Net Income 110 1060 665 822 657 246 -58 -1178 -1670 -1670 -711 -676
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