Powerchip exits DRAM business

SAN JOSE, Calif. - Taiwan's Powerchip Technology Corp. is exiting the DRAM market, and is transferring the business over to Japan's Elpida Memory Inc.

The deal was somewhat expected. Under the terms, Elpida will purchase all DRAM products that Powerchip will manufacture, including the current portion which Powerchip has been selling as Powerchip branded products. Elpida will sell those products as Elpida's house brand products.     

In other words, faced with another slowdown, Powerchip is getting out of DRAMs, which comes to no surprise to many. For years, the Taiwan company lost money in DRAMs. And it could not keep up or compete with Hynix, Micron and Samsung in the tough business.   

Powerchip plans to shift towards a foundry model by expanding its foundry production portion to Elpida as well as other semiconductor products and customers. Powerchip has a 300-mm foundry deal with analog chip maker Maxim Integrated Products Inc. Perhaps Powerchip wants to become a so-called ''specialty foundry'' player.

Elpida currently has a foundry agreement with Powerchip for DRAMs and purchases half of what Powerchip manufactures at their fabs in Hsinchu, Taiwan. Powerchip currently has 80,000 wafers per month capacity for commodity DRAM production and licenses from Elpida the right to distribute the other half of the products as their own branded products.

Powerchip also has a right to purchase approximately 30,000 DRAM wafers fabricated at Rexchip Electronics Corp., a joint venture between the two companies, and sell those DRAMs to their customers as their own branded products.

When a final agreement is reached, Powerchip will phase out the sales of own branded DRAMs and Elpida will purchase all PC DRAMs from Powerchip to sell them as its own branded products. In other words, the new agreement will enable Elpida to expand its production capacity without capital expenditures.

''Furthermore, demand for power-saving mobile DRAMs used in smartphones and tablet PCs has been increasing rapidly, forcing Elpida's Hiroshima Fab to allocate its capacity for these products and less to PC DRAMs. Elpida can compensate a declining portion of PC DRAM production at Hiroshima by increasing procurement from its foundry partner to maintain and improve its presence in the DRAM industry,'' according to Elpida.

Last year, Elpida, the number three DRAM maker behind Samsung and Hynix, was considering buying shares in Taiwanese DRAM makers to bolster its position.

An attempt to weld several small Taiwanese DRAM makers together into a single entity using government money fell apart earlier this year. Taiwan Innovation Memory Co., having been rejected as a suitable case for government investment as a DRAM company, is trying to reinvent itself as a NAND flash supplier.

This has left Powerchip, ProMOS Technologies Inc. and Winbond Electronics Corp. as being essentially too small to keep up in the capital intensive DRAM business and among possible targets for Elpida.

Earlier this month, Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC) agreed to purchase a fab and additional land from memory chip maker Powerchip for NT$2.9 billion (about $100 million). According to a regulatory filing made Wednesday, the deal includes a fab under construction at the Hsinchu Science Park in Northern Taiwan, where TSMC is headquartered and maintains several existing fabs.