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Update: Elpida joins cash preservation society and more!

06 November 2008 | By Mark Osborne | Editor's Blog

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Global DRAM CapacityThe news that Elpida Memory is putting a 300mm joint venture fab in China on hold makes perfect sense for the DRAM producer as it posted its fourth straight quarter of financial losses. Even though the deal with SVG, a Chinese venture capital group based in Suzhou City, meant that the local government would pay for the construction and offer a wide range of other incentives along the lines of those SMIC has benefited from, the whole project didn’t make much sense in the first place?

Elpida used the same logic as Hynix did when announcing its JV fab in Wuhan, which focused on the growing demand in China for DRAM as increasing amounts of products using the IC were being built there. Hynix had one other key justification for Wuhan, which was that in China, Hynix was already the largest memory supplier. Elpida doesn’t come close and wouldn’t do for a long-time.

The fact that Elpida’s fab in China wouldn’t have become operational until 2010 and now with the announced push-out of at least one-year, firmly puts this project into the ‘paper fab’ category. It should also be noted that if the conditions aren’t right for such a project now, it may be many more years before Elpida could seriously re-look at it, that of course if it hasn’t succumbed to the inevitable phase of consolidation, lurking around the corner!

It is interesting to note that Elpida is not just pushing-out fab expansions but is reigning in capital spending and adopting further cash preservation programs. Not only is it cutting CapEx internally, it is holding back on spending at Rexchip, its joint venture DRAM operation in Taiwan with Powerchip Semiconductor. Elpida said that spending at Rexchip would now only include essential spending, probably meaning technology buys or commitments on tool deliveries they can’t now stop.

Further to that, Elpida is only migrating 5% of its internal DRAM capacity to the 50nm node, while retaining 95% of production at the 65nm to conserve cash. At Rexchip, it will only migrate 30% of capacity at R1 to 50nm, while stopping cleanroom construction of R2. The impression given by Elpida is that the hold on 50nm migration will hold until at least its new financial year in April, 2009.

Also, a short time ago Elpida teamed with UMC on copper interconnect technology R&D alliance. Now Elpida is discussing outsourcing copper processing to UMC in an effort to further limit new equipment spending and save cash.

Finally, Elpida is considering the consolidation of Rexchip into a subsidiary and discussing with PSC future capital ties, which suggest a possible merger of sorts could be in the making as access to capital proves increasingly difficult to obtain, especially for companies in the red and in markets with heavy capital requirements.

As we have discussed here before, the over capacity in the DRAM market is self inflicted and although token efforts to reduce capacity expansions have been announced none on their own or cumulatively, will have much effect on the over supply situation.
Indeed, Hynix may have cut 200mm NAND flash production and closed some fabs but this was due to 200mm production being completely un-competitive. Hynix has also shifted production at its many existing fabs away from NAND as prices fall further and the cost of keeping at the leading-edge nodes increasingly more capital intensive.

So what does Hynix do?

It increases DRAM production and adds to the problems there.

Obviously, more, much more needs to be done and consolidation is one of the best ways to achieve this. We wait in the wings to see.

22, November UPDATE:
According to Taipei Times, Elpida and Powerchip are in discussions concerning future business collaboration that includes a possible merger that would also include their JV DRAM operations at Rexchip.

Global DRAM Capacity

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