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June 12, 2009 9:02 am

Taiwan Memory in talks on Elpida stake

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Taiwan Memory, the government-backed company formed to overhaul Taiwan's memory chip sector, is in talks to acquire a less than 10 per cent stake in Japan's Elpida, a Taiwan government official said on Friday.

Woody Duh, directorate general of the Industrial Development Bureau, said the two companies were in talks but a deal might not be reached in the short term because “Taiwan Memory has not even properly been established as a company yet”.

Taiwan Memory was set up in March, during the D-Ram industry's worst-ever downturn, to address Taiwan companies' lack of homegrown technology in the sector. While Taiwan is the world's second biggest producer of D-Ram chips, with a quarter of the $24bn global industry, its companies had long manufactured the semiconductors using licensed technology from companies including Japan's Elpida and the US's Micron.

Taiwan Memory had chosen Elpida as its technology partner in April. At the time, local chipmakers criticised the company’s formation as merely adding an extra competitor to an already crowded market instead of addressing problems such as dwindling balance sheets and repaying debt obligations.

Taiwan Memory’s chairman, John Hsuan, has said earlier that he would pursue research and development opportunities that would create new markets for Taiwan's D-Ram makers rather than bailing them out. However, Mr Duh on Friday raised the possibility of Taiwan Memory acquiring local chipmakers. “That is still being considered for the plan,” he said.

Mr Hsuan could not be reached for comment on Friday.

Mr Duh added that Taiwan Memory planned to apply for less than T$10bn ($306m) in funding from the government's National Development Fund – far less than the T$30bn that John Hsuan, Taiwan Memory chairman, had earlier said he hoped for.

Elpida's shares closed relatively unchanged in Japan on Friday at Y1,142. Based on that share price, a 10 per cent stake would cost about Y16.3bn ($166.7m). Elpida declined to comment, saying the company was still considering various options for strengthening their capital.

D-Ram prices have recovered to above cash cost levels recently after a calamitous drop last year that forced chipmakers across the world to close up factories or, in the case of Germany's Qimonda, file for bankruptcy.

Analysts warn, however, of a second fall in prices this year as companies resume production with their newly earned cash. Frank Wang, analyst at Morgan Stanley, said “We worry about a double dip risk in D-Ram prices”.

Additional reporting by Robin Harding in Tokyo.

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