Infineon Technologies A.G.'s decision last week to terminate its agreement to buy memory chips from ProMos Technology Inc. and cut itself loose from the joint venture could undercut its partner, Mosel Vitelic Inc., and DRAM prices.
And as a result of Infineon's actions, ProMos said it has no choice but to sell its DRAM on the spot market.
"We'll sell the products ourselves," said Thomas Chang, a vice president at Mosel Vitelic. ProMos, Hsinchu, Taiwan, manufactures 40,000 8in. wafers and 9,000 12in. wafers a month, with about 48% of that shipped to Infineon and the rest used by ProMos and Mosel Vitelic, Chang said.
The need for ProMos to turn to the spot market will almost certainly keep DRAM price tags attractively low for OEM buyers, analysts said.
"This will ruin prices in the market," said Rick Hsu, a senior analyst at Nomura Securities Corp., Taipei. "It's unlikely that ProMos will get qualification from OEMs on its products anytime soon, so they just have to sell their DRAMs on the market."
Infineon's termination of the agreement comes after it alleged that Mosel Vitelic breached contracts with the German chipmaker several times by using ProMos shares as collateral on loans.
Mosel Vitelic had a different explanation. "Infineon asked us to raise ProMos' capacity reserved for them to 90% from the 48% it is now, a request it would be impossible for anybody to say yes to," said a Mosel Vitelic vice president.
In addition to ending its production agreement as of Dec. 31, Infineon also said it will sell its 30% stake in ProMos "in the most rapid practical manner permitted by market conditions," as well as stop transferring new process technologies to ProMos.
Infineon also said that it will withdraw 30 engineers from ProMos.
"From a long-term point of view, [Infineon's decision] will actually be good for ProMos because we won't have to be confined to certain technologies offered by a shareholder," Mosel Vitelic's Chang said.
"Many foreign partners would transfer process technologies to ProMos in exchange for sharing their huge R&D cost, which amounts to $300 million for each generation," he said.
On the hunt for new technology sources, Mosel Vitelic has been talking with several DRAM companies such as Japan's Elpida Memory Inc., said Chang, without providing details on when a deal might be cut.
Elpida has agreed to use Taiwan's Powerchip Semiconductor Corp. as a foundry as part of its plan to surpass Infineon and become the world's No. 3 DRAM player.
Some analysts don't share Mosel Vitelic's optimism about the future of ProMos. "How they're going to find new partners remains a big question," said Chris Hsieh, an analyst at ING Baring Securities (Hong Kong) Ltd., Taipei. "It's definitely a negative factor for ProMos."
In this year's first three quarters, Mosel Vitelic lost $229 million and ProMos lost $73 million, after taxes. To help improve its financial position, ProMos' board of directors last week approved a plan to sell bonds that would raise $160 million.
Without Mosel Vitelic, Infineon still has several partners. The company last week agreed to license 0.14-micron technology to Semiconductor Manufacturing International Corp. and secure DRAM supply from the fast-rising Chinese foundry.
Earlier this month, Infineon and Tai-wan's Nanya Technology Corp. broke ground on a 12in.-wafer-fab joint venture in northern Taiwan. Infineon is also using Taiwan's Winbond Electronics Corp. as a foundry.