Taiwan DRAM Bailout Leads to Creation of Single Company

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Taiwan plans to merge its indebted DRAM memory chip makers into a single company called Taiwan Memory Company (TMC) in an attempt to stem losses and prevent loan defaults that could further harm the island's banking sector.

The company will be run by John Hsuan, an honorary vice chairman and former CEO of contract chip giant United Microelectronics, said Yiin Chii-ming, Taiwan's economics minister. The government will offer funding to the new company but will not own more than 50 percent of shares, he said.

Hsuan said Taiwan will choose either Elpida Memory of Japan or U.S.-based Micron Technology as a technology partner for TMC within the next three months. Research, development and chip design work will begin at TMC within six months.

The plan comes amid a global recession that has seen other nations such as the U.S. spend billions of dollars bailing out banks and other companies such as auto makers. Taiwan may be the first to agree to a technology industry bailout, but it faced few palatable choices.

A memory chip glut caused DRAM companies globally to start posting losses nearly two years ago and their problems have worsened with the global economic decline. Although companies have cut back on chip production and shut older factories, falling demand for PCs, where most DRAM chips go, have further hurt the market, and new loans to finance factory improvements have become difficult to obtain.

Earlier this year, Taiwanese officials said they had to do something about their DRAM makers because they hold so much debt, an estimated NT$430 billion (US$12.28 billion), much of it payable to Taiwanese banks. A default could add to woes in the financial industry.

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