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December 7, 2006 11:59 pm

D-Ram producers link up to build plant

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Elpida Memory and Powerchip Semiconductor on Thursday pledged to invest $13.6bn over the next four years to build one of the largest manufacturing complexes for dynamic random access memory (D-Ram) chips.

The move could help the Japanese chipmaker and its Taiwanese counterpart – which ranked fourth and sixth among global D-Ram makers based on third-quarter shipments – challenge their larger rivals. But it will also reaffirm fears that chipmakers’ aggressive capacity expansion could trigger a crash in D-Ram prices.

They have soared recently on expectations of a rise in demand linked to the launch of Microsoft’s new Vista operating system.

“We hope to become the world’s largest memory chipmaking alliance within three years,” said Yukio Sakamoto, Elpida chief executive.

Elpida and Powerchip said they would establish a joint venture in Taiwan with an initial investment of T$40bn (US$1.2bn) which would take over Powerchip’s latest 12-inch plant – now under construction in Taiwan.

The plant is scheduled to start mass production in August 2007, reaching its full monthly capacity of 60,000 wafers a year later.

Powerchip said the joint venture, which will be headed by Frank Huang, Powerchip’s chairman, would spend about T$70bn on manufacturing capacity next year. Subsequently it would build three more fabrication plants the same size before the end of 2010.

Analysts said the deal could help to push Elpida and Powerchip jointly into second place among global memory chipmakers, just behind Samsung and leapfrogging Micron, Qimonda and Hynix.

Since the aggressive move comes at the peak of the chip cycle, where manufacturers do not normally launch new capacity expansion programmes, it makes it hard for others to follow.

Samsung and Hynix, the industry leaders, have already raised concerns over oversupply, with expansion plans that some analysts believe the market will not easily digest.

Mr Huang said he was still optimistic that demand and D-Ram prices would hold up strongly in the first half of next year. “The Vista effect is playing out just now,” he said.

Rick Hsu, semiconductor analyst at Nomura Securities in Taipei, said that the alliance’s impact would be limited next year, since it would only represent a capacity increase of 15,000 wafers over Powerchip’s original expansion plans.

“In 2008, the impact should be felt more clearly in terms of overcapacity,” he said.

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