Elpida Initiates Merger Talks With Powerchip, ProMOS

Dec. 26 (Bloomberg) -- Elpida Memory Inc., Japan’s largest computer-memory chipmaker, has begun merger talks with Powerchip Semiconductor Corp. and two other Taiwanese semiconductor companies to counter a glut that’s widening industry losses.

“Ideally, the four companies should come together as one,” Yukio Sakamoto, chief executive officer of Tokyo-based Elpida, said in an interview after confirming the discussions with Powerchip, Rexchip Electronics Co. and ProMOS Technologies Inc. He declined to elaborate on details of the negotiations.

A combination would be the biggest reorganization in the $28.8 billion computer-memory chip industry since 1999, when Elpida and Hynix Semiconductor Inc. were formed after falling prices forced mergers among Asian chipmakers. The group would challenge Samsung Electronics Co. as the world’s biggest producer.

“A merger would help cut costs as the surviving entity would retire inefficient factories and workers,” said Robyn Hsu, who helps manage $4.9 billion in assets at Capital Investment Trust Corp. in Taipei. “And that would help companies return to profit.”

Falling prices of dynamic random-access memory, used in most computers to speed up operations, have led Taiwanese chipmakers to post six consecutive quarters of losses. Industry leader Samsung said this month that the glut is making it “difficult” for the company to profit from chips, while analysts estimate Hynix will post a record operating loss this quarter.

Powerchip Spokesman Eric Tang and ProMOS Spokesman Ben Tseng confirmed they are negotiating with Elpida, declining to give details. ProMOS, which asked for a government bailout earlier this month, is also in talks with Micron Technology Inc. about technology cooperation, Tseng said by phone today.

Marriage Proposal

“This is like a marriage proposal, and the government will choose whoever can offer the best terms,” Tseng said, declining to give further details.

Hsinchu-based Powerchip, Taiwan’s largest memory chipmaker, submitted a proposal to the government today for a bailout, Tang said. It plans to deepen cooperation with Elpida and Rexchip to improve its competitiveness. An alliance with ProMOS to boost its market share and reduce competition is also included in the bailout plan, Tang said.

Falling prices will drive down DRAM industry revenue to $24.9 billion in 2009 from $28.8 billion this year, according to estimates at UBS AG this month. Prices of the benchmark DRAM have tumbled 61 percent this year to a record low, according to Taipei-based Dramexchange Technology Inc., operator of Asia’s biggest spot market for chips.

Elpida and the three Taiwanese companies accounted for 23.9 percent of global DRAM revenue at the end of the third quarter, in line with market leader Samsung’s share, according to estimates at Dramexchange.

Record Operating Loss

Sakamoto projected Elpida will post a record annual operating loss as the global recession exacerbated a glut in the market.

The Japanese chipmaker, which in November reported its fourth straight quarterly loss, may have an operating loss of 120 billion yen to 140 billion yen ($1.55 billion) in the year ending March 2009 if DRAM prices don’t rebound, Sakamoto said.

Elpida is considering asking private equity firms and some manufacturing companies for more than 50 billion yen in funds for Rexchip, following the company’s announcement this month that will buy back 50 billion yen of convertible bonds, Sakamoto said. He declined to identify the companies.

Elpida climbed 3.8 percent to close at 517 yen on the Tokyo Stock Exchange today. The stock has plunged 87 percent this year, compared with a 43 percent drop by the benchmark Nikkei 225 Stock Average.