Taiwan Memory chooses Elpida, may still work with Micron

IDG News Service - Taiwan Memory Company (TMC), the government-funded entity that will be used to consolidate the island's ailing DRAM industry, has chosen Japanese chip maker Elpida Memory as its main technology partner, but the door was left open for an alliance with Micron Technology of the U.S.

The decision to work with Elpida was made weeks ago even as the head of TMC, John Hsuan, flew to both Japan and the U.S. to discuss alliance with Elpida and Micron, according to a source close to the situation.

But on Wednesday, Hsuan announced that TMC is still seeking a technology pact with Micron as well.

Neither Elpida nor Micron could be immediately reached for comment.

TMC is Taiwan's answer to a global recession that caught its DRAM industry in an already weakened position due to a chip glut that hit a year earlier. The government had discussed several ways to aid its memory chip makers, including a plan to inject up to NT$100 billion (US$2.95 billion) into the companies as well as working with banks to extend deadlines on loan repayments.

In the end, the government chose one of its original ideas, to force the most indebted chip makers to combine into a single company.

Hsuan has said he will likely need NT$30 billion to build TMC, and would also find money among private investors. A government representative said the final monetary figure has not yet been decided.

The decision by TMC to continue talking with Micron and its Taiwan partners, Nanya Technology and Inotera Memories, could be due to the fact Elpida does not make flash memory products, a weakness in its technology portfolio compared to Micron.

"The one disadvantage of selecting Elpida over Micron is that TMC won't get NAND [flash memory] technology since Elpida doesn't have a NAND business," said Nam Hyung Kim, a chief analyst at market researcher iSuppli.

TMC may also find its competitive position weakened once it does move forward with buying up Taiwanese DRAM makers because the downturn has caused them to fall behind in their technology upgrades, he added.

Jim Handy, an analyst at Objective Analysis, said building up revenue will be even more important for TMC than deciding on a technology partner.

"Elpida does have good technology, as does Hynix, Micron, Samsung, and even Qimonda," he said. "Having good technology is not saving Qimonda, however. A company's revenue level is the single most important thing if it is close to the current US$2.5 billion lower threshold."

Taiwan's decision to use TMC to consolidate its DRAM industry came amid a global recession that has seen other nations such as the U.S. spend billions of dollars bailing out banks and corporations such as auto makers. Taiwan may be the first to agree to a technology industry bailout, but it faced few palatable choices.

A memory chip glut caused DRAM companies globally to start posting losses nearly two years ago and their problems have worsened with the global recession. Although companies have cut back on chip production and shut older factories, falling demand for PCs, where most DRAM chips go, have further hurt the market, and new loans to finance factory improvements have become difficult to obtain.

Earlier this year, Taiwanese officials said they had to do something about their DRAM makers because they hold so much debt, an estimated NT$430 billion, much of it owed to Taiwanese banks. A DRAM default could add to woes to the island's financial industry.