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It is fashionable for chief executives to bemoan a lack of visibility. For Taiwan’s memory chipmakers, however, the outlook could not be clearer: a bloated industry must shrink. The best outcome, for Taipei at least, is that a government-led restructuring preserves many of the 28,000 local jobs. The worst is that egos and lenders get in the way, and Taiwan cedes almost total control of the industry to the Koreans.

Mashing six companies together is proving tricky, complicated by overlapping technology alliances and the near-bankruptcy of the weakest player, ProMOS. Taiwan Memory Inc could be funded by state capital and equity from the Formosa Plastics Group, parent of two of the chipmakers. On paper, the mega-corp would boast market share of 22 per cent in dynamic random access memory chips – used for short-term storage in computers and other gadgets – posing a real threat to Korea’s Samsung (27 per cent) and Hynix (21 per cent). But that simple calculation overlooks the painful integration process and Taiwan’s inexperience in technology consolidation – its only big merger was to create flat-panel display-maker AU Optronics in 2001.

UBS expects DRAM industry revenue to contract 31 per cent this year to some 45 per cent below the 2006 peak. Left to their own devices, manufacturers could not adjust capacity fast enough to offset plummeting orders. In 2007, as volume growth slowed, Taiwanese vendors were still racing to build bigger factories, accounting for almost half of global DRAM capital spending. The combined net debt of the five listed chipmakers is now three times bigger than their aggregate market capitalisation. Horizons are short in this business: nine of the top 10 DRAM suppliers in 1990 are no more, according to iSuppli. Germany’s Qimonda has already slipped through the cracks. Taipei needs to bash heads together to stop others joining it.

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