February 27, 2012 10:35 am

Elpida files for bankruptcy protection

Elpida, Japan’s sole remaining memory chipmaker, has filed for bankruptcy protection in the latest example of a big technology company failing to keep up a shift from traditional personal computers to tablets and smartphones.

The company said in a court filing on Monday that it was seeking court protection from creditors for debt of Y448bn ($5.55bn), one of the biggest-ever bankruptcies for a Japanese manufacturer. Elpida will not immediately cease operations, and said that, under court supervision, it “will make our best efforts to rebuild the business of our company”.

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Japan once dominated the market for dynamic random access memory chips, a key component in traditional PCs. The industry has now, however, become the domain of South Korean companies such as Samsung and Hynix, which analysts say will probably benefit from Elpida’s exit.

Elpida was the world’s third-biggest D-Ram maker with 14 per cent global market share, but like others in the industry has had a difficult time competing against Samsung, which has more than half of the market and more advanced technologies that enable it to keeps down the costs of making chips.

The D-Ram industry has seen two sharp downturns since 2008, and chip prices have remained weak in the face of the growing popularity of smartphones and tablets, devices that require fewer D-Ram chips than traditional PCs.

Elpida tried to make the transition to supply more chips for mobile devices – it became a supplier to Apple’s iPad, for example – but that process required heavy capital spending, which was difficult when Elpida made a net loss for the last six quarters and sometimes struggled to maintain a positive cash flow.

The company blamed last year’s Thai floods, as well as “factors such as the record-breaking strong yen against the US dollar, and the steep fall of the price of D-Ram products by fiercer competition in the D-Ram industry”, for its predicament.

Elpida, which was formed more than a decade ago from the merger of the D-Ram operations of several big Japanese chipmakers, had already been bailed out by the Japanese government in 2009. It still, however, faced deadlines in the next two months to repay Y92bn in bonds and loans, and two weeks ago warned it was uncertain about its future because debt talks had stalled.

Analysts said Monday’s filing would help buy time for Elpida to keep from having to liquidate assets.

MS Hwang, an analyst at Samsung Securities, said that while there may be no immediate change in the supply and demand situation, Elpida’s move was broadly supportive for D-Ram chip prices.

“In any event there will be no new capital expenditure from Elpida,” which is good news for an industry that still faces oversupply this year, Mr Hwang said.

But there is also some concern that Elpida’s exit could hurt PC makers, which are the main buyers of memory chips. DramExchange, the Taipei-based market researcher, said that without Elpida, “The D-Ram market will be one step closer to an oligopolistic state.”

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