Elpida to receive Y160bn bail-out

Japan’s Elpida Memory is to receive up to Y160bn ($1.7bn) in new capital through a state-led bail-out that will delay further rationalisation of the dynamic random access memory industry.

The state-owned Development Bank of Japan will buy Y30bn in preference shares and lend another Y10bn. Taiwan Memory Company – set up by the Taiwanese government to support its D-Ram industry – plans to contribute another Y20bn in capital. Elpida’s commercial banks will provide Y100bn loans.

The Y160bn will add to Y118bn of cash on Elpida’s balance sheet. But the new funds are only sufficient to replace the Y179bn that Elpida lost last year because of a global slump in prices and demand for D-Ram chips, which are primarily used in computers.

“I think we’ve entered the final battle for the D-Ram industry,” said Yukio Sakamoto, president of Elpida. He said only two or three companies with the funds to keep investing were likely to survive.

One possible outcome, Mr Sakamoto said, was that the industry would consolidate into two groups: one in South Korea, and one combining Elpida with Taiwan’s D-Ram industry.

The rescue package will allow Elpida to invest in chip fabrication plants and so remain competitive against its South Korean rivals Samsung and Hynix.

Akira Minamikawa at iSuppli in Tokyo, said the capital raising would allow Elpida to invest in cutting edge production technology, where it has fallen behind.

But Mr Minamikawa said injections of public funds would delay rationalisation and cuts to capacity globally. So far only Qimonda of Germany has gone out of business in this downturn.

Last April, Elpida was chosen to supply technology to TMC in preference to Micron of the US. TMC has not yet achieved its goal of consolidating Taiwan’s half-dozen D-Ram suppliers, however, because the companies are reluctant to lose their independence.

Pan Meng-an, a Taiwanese opposition legislator, said: “It seems today that [TMC] are throwing money into this partnership without having clearly negotiated the details of the technology co-operation. That would waste taxpayers’ money. The intention of TMC must still be to con-solidate Taiwan’s D-Ram industry, and not to help create more foreign competition.”

The Development Bank of Japan’s loans and equity are part of the government’s Y2,000bn scheme to support Japanese companies that cannot raise funds because of the financial crisis. Elpida is the second company to benefit from the scheme after Japan Airlines was bailed out in June.