Taiwan Dumps Memory Chip Rescue Plan

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The Taiwan government has dumped a proposal to inject money into Taiwan Memory (TMC), the linchpin of a plan to restructure its DRAM sector.

The plan was thought up at the height of the financial crisis last year. At the time, the crisis and a sluggish DRAM market threatened to send some of Taiwan's big memory chip makers into bankruptcy. But the worst of the financial crisis is now past, and an upturn in the DRAM market may have made the politically sensitive investment unnecessary, said Lu Cheng-chin, an official at the Industrial Development Bureau in Taiwan.

"Strong opposition to the plan by the legislature was one of the main reasons the economics minister decided not to move forward on the investment," he said.

The decision likely puts a final nail in the coffin of Taiwan's DRAM restructuring plan. The government had called Taiwan Memory the centerpiece of a blueprint to revitalize its DRAM sector, in a report to the legislature in November detailing reasons lawmakers should approve funding. The company was to work with Elpida Memory, including taking a 10 percent stake in the Japanese company, to develop new DRAM products and manufacturing technology which Taiwanese DRAM manufacturers could use at no charge.

The idea was to transform Taiwan into a developer of DRAM technology instead of simply a manufacturer dependent on licensing technology from foreign companies.

Lawmakers had opposed the idea, saying government money should not be used to bail out the chip makers because the worst of the economic crisis was already past.

Jih Lien, president of Nanya Technology, Taiwan's largest DRAM maker by revenue, said during a meeting before the government's announcement that "the government should not be in the business of building companies." Nanya has weathered the downturn far better than industry rivals on the island. The company has opposed the plan from early on.

The government has also halted other emergency measures put in place at the height of the recession, including negotiating emergency extensions on bank loan repayments to companies. Powerchip Semiconductor and ProMOS Technologies, two of Taiwan's biggest and most financially distressed DRAM makers, both took advantage of this scheme.

Now that it's over, the companies have to work out their own deals. "We are negotiating with banks ourselves on new terms to repay loans," said M. L. Chen, chairman of ProMOS, during a news conference late last year.

The global economy has rebounded strongly over the past several months, and DRAM prices have risen along with improved demand for the main product the chips go into, PCs.

The DRAM industry will rise 40 percent this year to US$31.9 billion, according to iSuppli, up from $22.7 billion last year. This year will mark the first gain in DRAM revenue in three years, the market researcher said. Taiwan's DRAM industry plan was first broached in the first quarter of last year, the worst quarter for DRAM makers since the Internet bubble crash of 2001.

Taiwan Memory could yet live on if the current administration works to find other ways to fund the venture, or if backers of the company find private investments. But the head of the company, chip industry veteran John Hsuan, has said publicly that government money would be needed to attract private investors.

Taiwan Memory did not return calls or e-mails seeking comment.

The Japanese newspaper Yomiuri Shimbun has also quoted the head of Elpida as saying the investment from Taiwan Memory to Elpida is no longer needed due to the industry recovery, yet another sign the DRAM plan has failed. The executive made the comment after the announcement by the Taiwan government, and analysts say he likely already knew no investment would be forthcoming from TMC and made the statement to limit any possible impact on his company's stock price.

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