Bloomberg News

Elpida Sees ‘Uncertainty’ About Survival Amid Debt Talks

February 14, 2012

(Updates with analyst’s comment in fourth paragraph.)

Feb. 14 (Bloomberg) -- Elpida Memory Inc., the Japanese chipmaker facing an April deadline to repay debts, said it sees “uncertainty” over remaining in business because it still doesn’t have the necessary financing.

Elpida hasn’t been able to reach a deal with the trade ministry, the Development Bank of Japan and its main lenders, the Tokyo-based company said in a statement today. Elpida’s ability to repay 92 billion yen ($1.2 billion) in bonds and loans is made more difficult by plunging chip prices and five straight quarters of losses.

The comments reverse a Feb. 2 announcement from the Apple Inc. supplier that it expected to secure financing by March 31. Japan’s largest maker of dynamic random access memory, the most common chip in computers, needs government backing to stay in business as South Korea’s Samsung Electronics Co. profitably diversified while chip prices collapsed, analysts said.

“The government already helped them in the past, so it’s important for them to exit when the company is still alive,” said Yoshihiro Nakatani, a senior fund manager at Asahi Life Asset Management Co. in Tokyo. “I think the support will continue.”

Samsung Diversifies

The shares rose 0.8 percent to 374 yen in Tokyo today, before the announcement. The company lost 62 percent of its market value last year, extending a 37 percent slump in 2010.

“Elpida has not made as much progress as initially envisioned in discussions with the relevant parties,” the company said today. “Therefore, material uncertainty about its assumed going concern is found.”

Elpida’s slump indicates the difficulty Japanese companies have in competing with Samsung, which had 7.34 trillion won ($6.5 billion) in operating profit from selling chips last year. Chip prices had become as cheap as a “rice ball,” Elpida Chief Executive Officer Yukio Sakamoto said last year.

Samsung boosted its profits by producing specialty chips for smartphones, tablet computers and servers.

Elpida is also discussing advance payments and capital investments with customers, it said last month. The chipmaker’s net loss for the three months ended Dec. 31 was 42.1 billion yen as demand for personal computers slumped and the yen strengthened, it said Feb. 2.

DRAM Losses

“The negotiations must have been rough sailing,” Mitsuo Shimizu, a Tokyo-based analyst at Cosmo Securities Co., said by phone.

The company got 140 billion yen in financial aid and loans from the government and banks in 2009 after falling chip prices caused it to post a record loss.

“Elpida’s future is totally dependent on the government’s decisions,” said Young Park, a Hong Kong-based analyst at Woori Investment & Securities Co.

The company can’t survive on its own, and the Japanese government may be willing to extend support to keep DRAM production within the country, he said. Japanese media have reported that Elpida may tie up with Micron Technology Inc. and Nanya Technology Corp.

Elpida, Hynix and other makers of DRAM chips lost a combined $14 billion in the past three years, according to Bloomberg calculations. That comes after the $37 billion that researcher DRAMeXchange estimates they spent building factories in a bet on continued growth in the industry.

Prices Plunge

DRAM prices plunged to a record low last year after PC shipments missed analyst forecasts and sales of Apple’s iPad surged. As the faltering global economy and floods in Thailand curb PC production, some DRAM manufacturers may not have enough money to mimic Samsung’s diversification, analysts said.

Elpida was formed through the 1999 merger of NEC Corp.’s and Hitachi Ltd.’s memory businesses. Fujitsu Ltd. abandoned the business that year, and Toshiba Corp. announced its withdrawal in 2001 to focus more on making NAND flash memory chips, which are used in tablet computers and smartphones.

Elpida plans to shift some domestic production to its Rexchip Electronics Corp. unit in Taiwan to reduce its vulnerability to a stronger yen, it said in September. The rising Japanese currency, which climbed to a postwar high of 75.35 against the U.S. dollar on Oct. 31, is eroding Elpida’s repatriated earnings from overseas sales.

Samsung controlled 45 percent of the DRAM market by value in the third quarter, according to Englewood, Colorado-based IHS Inc.’s iSuppli. Hynix held a 22 percent share, followed by Elpida’s 12 percent.

Micron had the same share as Elpida, with $2 million less in revenue, and Nanya had a 3.6 percent share, according to iSuppli.

“Elpida is really struggling and there are no mergers and acquisitions possibilities available,” said Ben Yeh, who rates Nanya “neutral” at KGI Securities Co. in Taipei and doesn’t directly cover Elpida.

“I am confident the Japanese government will help because they have an incentive to do so now that the worst has passed and the industry and prices are picking up.”

--With assistance from Jun Yang in Seoul, Tim Culpan in Taipei, Yuki Yamaguchi and Mariko Yasu in Tokyo. Editors: Anand Krishnamoorthy, Michael Tighe.

To contact the reporter on this story: Naoko Fujimura in Tokyo at nfujimura@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net


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