Elpida Fails to Negotiate with Government Regarding Debts

Elpida Unable to Repay $5.6 Billion Debt, Begins Insolvency Procedures

by Anton Shilov
02/27/2012 | 08:47 PM

Elpida Memory, the only manufacturer of dynamic random access memory (DRAM) in Japan, said that it had failed to gain protection from the government to repay the $5.6 billion debt in the following weeks. As a result, company filed a for the commencement of corporate reorganization proceedings and filed the same with the Tokyo District Court, which essentially means bankruptcy.


Elpida was formed by the merger of the DRAM businesses of the major Japanese DRAM makers: NEC, Hitachi, and later Mitsubishi in 1999. Elpida, which has advanced process technologies and ability to further improve them, has suffered because of the 2011 DRAM price collapse and Japan's strong yen, reports Objective Analysis. The success of the Japanese economy raised the value of the yen, but Elpida is simply unable to compete in an oversupplied world market using prices that are yen-based.

Since Elpida is Japan's only DRAM manufacturer many industry watchers and participants expected Japan's government to keep the company afloat out of national pride. This seems not to be the case.

"Based on the background mentioned above, we have concluded that, if we continue the business by ourselves, we will face cash shortage soon. Moreover, we assumed that, if we left this situation and then cash shortage would become reality, the corporate value of our company must significantly fall, there must be no way to be supported by any sponsorship, and the people concerned such as the creditors must suffer more inconvenience. Therefore, we are obliged to decide that we will aim for the restructuring of our business under the proceedings of the corporate reorganization act and filed the petition as of today," a statement by Elpida reads.

Over the life of the DRAM industry companies that have exited the business have remained in production under a different organization. Certain companies exit the business by converting DRAM capacity to manufacture other products.  Intel, National Semiconductor, Fujitsu, STMicroelectronics, Motorola, and many others have taken this route.  These were all companies that had a large enough semiconductor business outside of DRAM that they could effectively execute such a plan.  Even companies that are strong in both NAND and DRAM can convert DRAM capacity to NAND flash relatively inexpensively.  Elpida does not have this luxury, notes Objective Analysis.

Of the remaining DRAM manufacturers, Micron is the only one that is likely to take over other companies' DRAM businesses. Hynix and Samsung build all their own capacity themselves.  The Taiwanese players (Nanya, Powerchip and ProMOS) are in a position similar to Elpida's, so they are unable to acquire the firm, but will rather consolidate themselves, claims Objective Analysis.

Elpida will stay in business as various options are decided. The purpose of the bankruptcy is to shield the company from actions its creditors could legally take to seize assets. The intent is to continue to operate. This means that there will be no change to the current oversupply until a decision has been made. It is also unlikely that an Elpida exit from the market would create an oligopoly leading to stable prices stemming from a lack of competition. DRAM is still an undifferentiated product in which capital costs dominate the cost structure, so oversupplies will result in a price collapse as long as there are two or more vendors.

In short, this move is unlikely to impact DRAM prices over the near term, as Elpida sorts out its future and the market remains oversupplied, concludes Objective Analysis.