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August 30, 2005 9:00 pm

NEC and Hitachi reduce Elpida holdings

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NEC and Hitachi will sell down their stakes in Elpida, Japan’s sole remaining maker of dynamic random access memory chips, further reducing their exposure to the volatile sector.

NEC said it would reduce its stake in Elpida from 23.84 per cent to 13.89 per cent by the end of September. As a result, it will no longer be Elpida’s largest shareholder and the chipmaker will no longer be an NEC affiliate.

NEC, which expects the sale price to be about Y30bn, ($268m) said it had factored any profits from the sale into its results forecast for the year.

Hitachi will replace NEC as the largest shareholder in the D-Ram company, although it, too, is selling down its stake from 23.84 per cent to 19.7 per cent.

“D-Ram is a high-risk, high-return business, with high [earnings] volatility  . . . and so we have gradually distanced ourselves [from the business] in order to achieve stable earnings,” Hitachi said.

Elpida was formed in 1999 as a 50-50 joint venture between NEC and Hitachi, which were among the Japanese electronics companies that once dominated the D-Ram market.

The decision to sell down their stakes, which follows Elpida’s listing last November and the end of a lock-up period in May, reduces their involvement in D-Ram at a time when Japanese semiconductor makers are struggling to generate profits in a market increasingly dominated by South Korea.

Hitachi and NEC have both invested substantial sums in Elpida following its establishment as a separate company. Hitachi has provided Y57.5bn in funds since 1999, while NEC has invested the same amount.

Elpida has succeeded in reducing its exposure to the volatile PC market by building expertise in memory chips for mobile phones, but it still faces formidable challenges ahead.

“They are about one-sixth the size of Samsung, so they have a lot of catching up to do,” says Yoshihiro Shimada, industry analyst at Macquarie Securities.

Elpida is the world’s fifth-largest D-Ram manufacturer, with a 6.8 per cent market share, according to iSuppli. It trails industry leaders such as Samsung, the Korean group that is the largest D-Ram supplier with a 28.5 per cent share and Hynix, the number two, which is also Korean, with 16.2 per cent.

The Japanese group made a Y3.3bn consolidated net loss in the first quarter as it suffered a downturn in D-Ram prices, although it is keeping its forecast of Y14bn in net profit for the full year.

 

 

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