February 2, 2012 2:05 pm

Troubled Elpida dismisses tie-up talk

Elpida, the troubled Japanese chipmaker, dismissed talks of a possible tie-up with American or Taiwanese rivals even as it posted its fifth consecutive quarter of losses – hit by intense competition, supply chain disruptions and a drop in demand.

Japan’s only remaining maker of Dram memory chips is struggling to stay afloat and its creditors are telling it to consider tie-ups among other possibilities, but Yukio Sakamoto, president, is focused on seeking ways for the company to become profitable on its own.

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Shares in Elpida had risen last month on hopes that it could be in talks on a potential capital tie-up with Micron of the US and Nanya of Taiwan, as reported by the Japanese media but denied by the companies.

Elpida may be the world’s third-biggest Dram maker but it faces an uphill battle against Samsung Electronics, which has more than half of the market and more advanced technology to cater for consumers who are increasingly turning from traditional PCs to smartphones and tablets.

This switch to products which use fewer, more specialised Dram chips pushed prices down by 53 per cent in the second half of last year, although they have slightly recovered since December, according to TrendForce, a Taipei-based research firm.

Like other Japanese manufacturers, the chipmaker has also suffered from the strong yen and disruptions to the supply chain caused by the Thai floods.

Elpida’s revenues fell by more than a third to Y59.8bn ($785m), compared to a year ago, in the three months ended in December, and recorded a net loss of Y42.1bn, 12.6 per cent wider than a year earlier, but slightly better than the Y48.9bn loss in the previous quarter.

To survive, the company must reach a new loan agreement with its creditors, which include Bank of Tokyo-Mitsubishi, Sumitomo Mitsui and the government-affiliated Development Bank of Japan, ahead of looming debt-repayment deadlines at the end of March.

Mr Sakamoto said he expects to reach an agreement but, even if he succeeds, Elpida will still have less money than its competitors for the capital-intensive investment that it needs.

While the Japanese government and banks will probably continue to extend a lifeline to Elpida, the company’s problem is that its weakened state has reduced Elpida’s financial capability to invest in more advanced chip-processing technology that would reduce production costs, said Kazuo Yoshikawa, an analyst at Morgan Stanley MUFG, in a note when he downgraded Elpida last month.

Elpida faces not only the challenge of a dominant Samsung, but other rivals, like Korea’s Hynix Semiconductor, which are better able to invest in the production for mobile and flash memory chips.

Hynix, the world’s second-largest memory chipmaker, reported a net loss of Won239.9bn ($215m) for the October-December period – but it still intends to raise capital spending by 20 per cent to Won4.2tn this year.

By contrast, Elpida is cutting its fiscal year 2011 capital-expenditure forecast by Y8bn to Y72bn.

“Japanese chipmakers are clearly losing competitiveness as Japan’s [device] makers struggle, the yen appreciates, and financial strength declines,” Mr Yoshikawa added.

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