Abstract

MIC Perspective

Elpida Aims to Restructure Debt through Corporate Reorganization Proceedings

Elpida has been aware of the debt problem and operation crisis that the company is due to face in the second quarter of 2012. Therefore, the company had aggressively negotiated with the Japanese government and banks starting from the second half of 2011 up until early 2012. Elpida even attempted to team up with international companies to form a cross-nation alliance with an aim to strengthen its competitiveness.

However, since Elpida, the Japanese government, and banks each had their respective concerns, no cooperative agreement was reached as a result. Elpida thus decided to file for corporate reorganization proceedings in a bid to gain more power and control over its debt crisis, thereby creating more room to negotiate with long-term strategic partners.

Japan Government's Decisions to Determine Future DRAM Industry Development

After Intel - an early developer of DRAM - exited the DRAM market, the semiconductor companies and industry in Japan have made considerable contributions to DRAM product development and market expansion. Elpida is the JV established through the merger of DRAM operations of NEC and Hitachi and initiated by the Japanese semiconductor industry in the face of competition from abroad. Elpida is the sole manufacturer in Japan dedicated to DRAM production.

Toshiba is another Japanese company engaging in memory business, mainly focusing on NAND flash memory production. In the NAND market, Toshiba is ranked second only next to Samsung. Toshiba even outperforms Samsung in several areas in terms of memory technology and manufacturing process. However, Toshiba is still limited to low level of technology-independent capabilities, and so there were discussions that Toshiba should merge with Elpida for the sake of the Japanese DRAM industry, with an aim to develop integrated memory products in the future.

Toshiba group is one of the leading electronics product suppliers. Therefore, memory business is merely accounted for a part of Toshiba's overall operations, so whether or not to consolidate a DRAM company into the group would have to take the future development directions of the group into considerations. Furthermore, Elpida has been shouldering heavy debt burden, and with current DRAM market appearing to be less promising, the Toshiba-Elpida merger is unlikely to happen as Toshiba would have to share Elpida's debt.

The Japanese government recently promoted mergers among small- and medium-sized panel enterprises through INCJ (Innovation Network Corporation of Japan). It is reported that INCJ intended to consolidate the SoC (System on Chip) operations of Fujitsu, Panasonic, and Renesas Electronics. This indicates that the Japanese government has been initiating a comprehensive deployment in repose to changes in the industry. It is anticipated that even after Elpida's filing for corporate reorganization proceedings, the fate of Elpida will be highly correlated with industrial policy directions formulated by the Japanese government and altitudes of the banks as well as companies involved in Japan. Despite of the fact that there are still high levels of uncertainties in respect of Elpida's future, the Japanese government is expected to place focus on the effects of Elpida's reorganization on employment and technology-independent capabilities.

Makers Worldwide Expected to Take Actions, Seek Strategic Advantages

In comparison to Elpida which focuses solely on a mono-product market, other international major manufactures - such as Elpida's potential strategic partners Micron and GlobalFoundries - seem to have relatively healthy business operations. However, same as Toshiba, the abovementioned companies are unlikely to share Elipda's heavy debt. Should Elpida be able to successfully restructure through the proceedings, the chance of other companies initiating a merger and/or an acquisition with Elpida will become higher. It is likely that other Taiwanese companies and/or Chinese companies will then also show interests in investing in Elpida too. Nevertheless, with Elpida's reorganization plan being approved, there will be a wide variety of scenarios for future development of Elpida.

As regards Taiwanese DRAM industry, in the short run, Elpida's filing for corporate reorganization proceedings may be bad news for the industry, and the filing indicates that the industry is still far from recovering. Nevertheless, other DRAM manufacturers such as Taiwanese manufacturers have begun transformation after the previous financial turmoil. Today, Inotera and Rexchip are the only two Taiwanese companies engaging in large-scale DRAM production. In the long term, as Elpida has successfully gained the approval for the corporate reorganization, global DRAM production is expected to be under control, and industry order is able to be restored. However, if Elpida failed to complete the plan, the company would face bankruptcy liquidation, leading to the termination of Elpida's production. Consequently, the termination of Elpida's production is expected to have helped the market achieve a balance between demand and supply.

As for DRAM upstream and downstream industries in other countries such as the Taiwan DRAM industry, they are advised to seize the opportunity and identify their strategic positions. By paying attention to the directions of Elpida's reorganization plan, they can seek necessary resources, with an aim to adjust their industrial structure and effectively integrate memory, semiconductor, and end-market industries. By doing so, they still stand a chance to find their niche in the future to come.

Appendix

Glossary of Terms

List of Companies