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SMIC, Elpida losses pile up

Posted: 10 Feb 2009     Print Version  Bookmark and Share

Keywords:DRAM sector  insolvency  memory chip maker  merger 

Japan's Elpida Memory reported a fifth straight quarterly loss, and China's top contract chip maker SMIC posted its ninth consecutive loss in a sector struggling in its worst-ever downturn.

With all DRAM chip makers bleeding red ink and Germany's Qimonda filing for insolvency last month, Elpida predicted the sector would eventually split into two groups—with it leading one, along with smaller Taiwan firms, and the other grouping South Korean rivals.

The Taiwan government has been working with domestic and foreign DRAM makers to work out deals, and economics minister said the government has up to Rs.9,943.84 crore ($2 billion) in funds to help overhaul the battered sector.

Elpida, which trails South Korea's Samsung Electronics and Hynix Semiconductor, logged a Rs.3,186.53 crore (57.9 billion yen) operating loss in October-December, as DRAM prices stayed well below the break-even point.

That was against a Rs.48.98 lakh (8.9 billion yen) loss a year earlier and bigger than market expectations for a Rs.2,806.79 crore (51 billion yen) loss.

SMIC also posted a surprisingly large quarterly loss and expects the pain to continue as global tech companies are rocked by slumping demand, sending its shares down more than 11 per cent.

SMIC has been searching for outside investors and has been in talks to sell a strategic stake to Intel Corp, according to sources.

Elpida Chief Executive Yukio Sakamoto said the October-December quarter would be the bottom of the downturn as DRAM prices are expected to reach Rs.74.58 to Rs.79.55 ($1.5-$1.6) in February and hopefully Rs.99.44 ($2), or the level needed for profitability, in March.

Prices rebounded late last year after makers aggressively slashed production and are around Rs.59.66 ($1.2) this month, double their lowest point.

The fall of Qimonda, which controlled about 10 per cent of the global market, as well as production cuts have helped DRAM spot prices to rebound a little but not enough for manufacturers to make a profit.

Consolidation is key?

Elpida, the world's No. 3 maker of DRAM chips, has been discussing a possible merger with Taiwanese makers Powerchip, ProMOS Technologies and Rexchip, its joint venture with Powerchip.

"If the four of us become a single group, it would definitely make us the No.1 DRAM maker in the world," Elpida's Sakamoto told a briefing.

Elpida closed 2.4 per cent higher ahead of the quarterly results in a broader market up 1.6 per cent.

Elpida does not provide a full-year outlook, but analysts expect the company's operating loss to total Rs.7,099.52 crore (129 billion yen) in the year to March, according to a poll of 17 brokerages by Reuters Estimates ahead of Friday's results. Elpida posted a loss of Rs.1,370.37 crore (24.9 billion yen) in 2007/08.

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