Opinion: Taiwan DRAM makers must give up

Opinion: Taiwan DRAM makers must give up
SAN JOSE, Calif. -- For a long time, Taiwan's DRAM makers have been losing money. Inotera, Nanya, Powerchip, ProMOS and Winbond this week all posted massive losses in Q1.

And there is no end in sight. In my opinion, it's time for Taiwan's DRAM makers to merge, consolidate--or give up.

The time is now. Not next quarter or next year. Now! There is a plan to consolidate Taiwan's DRAM makers, but so far, no one has budged.

On April 9, for example, the Micron-Nanya-Inotera camp said that it will not join Taiwan Memory Corp. (TMC), a government-backed venture ''over concerns about the feasibility of TMC's business plan and the potential leakage of technology know-how to competitor companies.'' Instead, the alliance between Micron, Nanya and Inotera will focus on the introduction of Micron's 50-nm stack technology.

Japan's Elpida Memory Inc. was recently named the technology partner for TMC. Over time, TMC may consolidate Powerchip, ProMOS, and possibly Winbond's DRAM unit.

But don't count on it. The egos in Taiwan's DRAM industry have too much pride to give up and consolidate. They would rather go down fighting.

Most are waiting for the upturn. Until then, expect red ink. For example, Nanya Technology Corp. this week said revenue was NT$6.172 billion ($186.2 million) in the first quarter, an increase of 1 percent compared to the fourth quarter in 2008, but down 32 percent year-over year.

Net loss in the first quarter was NT$10.513 billion ($317.1 million), ''mainly due to excess inventory, weak demand and production cut loss,'' according to the DRAM maker. This compares to a loss of NT$11.887 billion ($358.5 million) in the fourth quarter and a loss of NT$8.783 ($264.9 million) a year ago.

Nanya is migrating from trench technology to Micron Technology Inc.'s stack technology, as part of a joint DRAM venture between the two companies.

Nanya currently has started the migration of 68-nm stack technology for DDR3 DRAM products and is scheduled to start pilot run for a 2-Gbit DDR3 DRAM product in 50-nm stack technology in the third quarter of 2009. The 50-nm technology conversion will be completed in the second half of 2010.

Nanya's capital expenditures in year 2009 are expected to be NT$13 billion ($392.1 million), 8.3 percent than 2008. The capex is mainly for 68-nm conversion and pilot run of the 50-nm technology.

Inotera Memories Inc. is the actual joint DRAM venture between Nanya and Micron. Taiwan's Inotera also announced results for the first quarter of year 2009, which were separate from those of Nanya. The net loss was NT$5.316 billion ($160.4 million) on sales revenues of NT$6.355 billion ($191.7 million).

The 23 percent decrease in sales revenues ''was due to a sequential decline in DRAM average selling prices and a 49 percent decrease in bit shipments as a result of production cuts during the first quarter of 2009,'' according to the company.

Due to the insolvency filing of one of Inotera's major customers--Qimonda AG--Inotera has discontinued wafer shipments and wafer starts for Qimonda. This resulted in a 51 percent decrease in overall wafer shipments compared to the previous quarter.

Total capital expenditures for 2009 are expected to be about NT$11.7 billion ($352.9 million).