As the prices of dynamic random access memory (DRAM) continue to collapse due to lowering demand, smaller memory makers have no choice, but to either merge in order to cut costs or extinct, according to market observers.
"Some companies may not be able to go it alone. Consolidation is inevitable for survival in this industry. It’s in a runaway deficit," said Makoto Kikuchi, the chief executive officer of Myojo Asset Management Japan, reports Bloomberg news-agency.
ProMOS, a Taiwan-based DRAM manufacturer, has been losing money for sixteen quarters (four years) in a row. Meanwhile, Japan-based Elpida, which is beset by $4.16 billion debt, reported 45.7% revenue drop for the quarter ended June 30, and lost ¥3.824 billion ($49.798 million) on sales of ¥95.716 billion ($1.243 billion). Powerchip Semiconductors and Nanya Technology have also reported losses.
Larger manufacturers of memory, Samsung Electronics, Hynix Semiconductor, Micron Technology, remain profitable because they are able to use leading-edge process technologies and manufacturing facilities. Their size and volume of scale allow them to afford development of new silicon production processes and building up new facilities.
In order to design advanced processes and upgrading factories, smaller makers need to either consolidate or die. However, this will not solve all the financial problems of the companies. Potentially, this means that the combined DRAM company will need funding from the governments. Taiwan once attempted to create such a company, but failed.
“If traditional consolidation means that several companies combine into one, then it’s kind of difficult because everybody’s financial situation is quite severe. Two or three poor men together don’t make a rich man. You have to find your own way," said Eric Tang, a spokesman for Powerchip.
“No one will want to buy these money-losing chipmakers now, and it’s a matter of who’ll get out of the market. Who’d jump into this market?” asked Kim Chang Yeul, an analyst at Mirae Asset Securities.