Taiwan's DRAM Plan Fails

Good riddance, say manufacturers


Taiwan’s plan to restructure its dynamic RAM industry seems to have met its end—not with a bang but with a whimper. The plan was to consolidate the industry and acquire new technology under the banner of a new company, Taiwan Innovation Memory Co. (TIMC), created in March 2009. In mid-November, the country’s lawmakers rejected the cabinet’s request for the National Development Fund to invest NT $5 billion (about US $150 million) in TIMC—all but ending what had turned out to be a pretty unpopular project.

The plan had its origins in 2008’s disastrous downturn. Then, DRAM makers around the world found themselves in a financial bind following an orgy of overcapacity and plummeting prices. Manufacturers in Europe, Japan, Korea, and Taiwan turned to their governments for help, although it was too late for Germany’s Qimonda, which went under early last year.

Taiwan accounts for less than 15 percent of the global DRAM market by revenue, but it is home to six of the 10 major manufacturers. Through various deals, foreign firms such as Elpida, Memory, Micron Technology, and Hynix own stakes in several Taiwanese manufacturers and have transferred DRAM technology to them partly in exchange for a portion of their output.

None of Taiwan’s six DRAM firms agreed to be folded into TIMC. And improved DRAM prices in 2009 have left manufacturers in less dire straits. According to Taiwanese market research firm DRAMeXchange Technology, contract prices for DDR3, expected to soon become the most popular memory for new computers, rose sharply in the third quarter of 2009—by 36 percent—and spot prices were up 24 percent.

Officials of the executing agency, the Ministry of Economic Affairs, still see a need for restructuring. ”Although we’ve seen the prices bounce back, root problems have not yet been solved,” Minister of Economic Affairs Yen-shiang Shih told reporters. ”The plan aims to remove major obstacles, including our local makers paying dozens of billions every year to acquire key technologies from foreign partners.”

Some analysts agree that this is just a temporary reprieve for Taiwan. ”They’re not having to face the music as soon as they thought,” observes Jim Handy, of Objective Analysis, which does market research for the semiconductor industry. ”Consolidation can be put off in good times,” but the need for it—namely to be able to afford the rising cost of equipping a fab for new generations of products—will reappear with the next downturn, he says.

At press time, the Taiwanese cabinet had yet to officially call off the reconstruction plan. John Hsuan, who was tapped to lead TIMC, says he personally would not feel bad about a possible halt to the plan. ”I will just accept whatever final decision the government makes,” he says.

TIMC has already made some progress on the technology front. Under a deal struck in March, TIMC is expected to hold 10 percent of the shares of Tokyo-based Elpida and collaborate on the migration of technology from Elpida to TIMC. There are signs, however, that the deal may not last. Elpida recently announced technology and production deals with Taiwan’s ProMOS Technologies and Winbond Electronics.