by Andy Patrizio
Elpida Memory has become Japan’s largest manufacturing corporate failure since WW II, another sign that Japan Inc. is in serious trouble. The effect on end users, however, should be minimal.
The company filed for bankruptcy protection in February, citing its inability to refinance debts of US$5.6 billion. Unlike Qimonda, Elpida won’t be liquidated. At least, that plan isn’t on the table for now. The company is hoping for a reorganization of its hefty debts. Indeed, bankruptcy might be just what it needs. Japan Airlines, or JAL, went through bankruptcy and has emerged a leaner, stronger player.
Elpida was not facing a loss of sales or market. It was a healthy player, with about 10 percent of the DRAM market, putting it third behind Hynix and Samsung, the latter holding more than 40 percent of the market for the lead.
Elpida’s problem was the glut of memory on the market and the Japanese Yen being particularly strong made it impossible for the company to sell anything at a profitable price. The final blow came from the floods in Thailand, which impacted PC sales.
So Elpida’s problems stem from things it can’t control, like the Yen and the Thai flood impacts, says Jim Handy, president of Objective Research, a market research firm focused on the memory market.
“The big question is whether or not they can survive until DRAM goes back into an undersupply. That won’t happen until the middle of next year,” he said.
He predicts that DRAM capacity will drop because of a capital expense cycle that takes place almost every two years. Over the last several years, all of the memory makers have spent a fortune to increase capacity at the same time, and two years later, prices take a plunge due to oversupply.
So the memory makers all pull back on spending at the same time, and memory prices at the very least stabilize two years later. Based on the most recent cycle of capital investments, he expects the oversupply to last until next year.
Then Elpida has to figure out where they go from here. “If their debt gets written down well enough then they can continue to compete. If they do that, they will come out of it with a cost structure that is competitive until you take into account the Yen. That will still be a problem for them. It still leaves some question marks around them,” said Handy.
Handy does not expect Elpida do make any dramatic turn nor has the company given any indication it will pursue a different market. It has an agreement to make NAND flash memory but has nothing in production.
If they can’t find a way to pay down debt enough to operate, that then they will be acquired or go out of business. Micron is known for acquiring companies on their last legs and for a bargain price, or a Japanese firm might step in. There had been speculation of a deal but that has been thrown into uncertainty following the sudden death of Micro CEO Steve Appleton in a plane crash earlier in February.
But since Elpida for now will continue to make memory for DIMM makers like Kingston, Corsair and Patriot, consumers won’t see any impact in price or supply. So long as those customers don’t defect – and there’s no promise they won’t – its business as usual.
Until next summer.