Taiwan DRAM chip bailout won't stem decline

CIOL Bureau
Updated On
New Update

LONDON, UK: Taiwan's expected bailout this week of its failing computer memory chip industry will be a sop to national pride, but is likely to delay any hope of solving the capacity glut in high-tech's most commoditised sector.


The market for DRAM, or dynamic random access memory, the chips used for short-term storage in computers and other electronics, needs fewer players with more pricing power to give the global industry any shot at long-term profitability.

Taiwan's top three computer memory chip makers, Powerchip, Nanya Technology and ProMOS have been working with the government on plans to fend off the dominant players, Samsung and Hynix of South Korea.

They are seeking Taiwanese government backing for restructuring plans that would involve teaming up with Elpidia of Japan or Micron Technology of the United States.


Taiwan is ready to commit up to T$70 billion ($2 billion) to create a joint holding company of the country's DRAM makers. Depending on how the government and industry structures the deal, it could speed or slow rationalisation of Taiwan's memory chip market, which produces nearly a quarter of all DRAM chips.

The government's money is better spent shoring up more competitive parts of the island nation's computer economy. Taiwan should deemphasize DRAM and focus resources on industries where it dominates in a global sense, such as the contract chip-making foundries led by TSMC, or PC design and marketing houses like Acer or Asustek.

The DRAM market has endured brutal commodity conditions that stretch back 25 years with only short stretches of profitability. It's a high-volume market with low barriers to entry, other than facility with the latest technology manufacturing skills. It's easy to enter, but as Taiwanese firms have found, difficult to reach the top.


As a group, Taiwan's top three DRAM makers saw market share tumble as revenue fell by more than half in 2008. Unlike bigger rivals which own their own plants, Taiwan's DRAM makers contract out to other manufacturers and have no cash to invest in their own capacity.

Industry bailouts are again in vogue with governments seeking to preserve jobs and competitiveness in the world economy. But the memory industry suffers from more corporate egotism and national pride than most sectors.

The semiconductor industry as a whole is considered strategic because of the increasing role electronics play in defining world-class industries. Germany's advantage in the luxury sports car market stems to a big degree from its prowess in automobile electronics, for example. In that sense there is a case to be made for successful chipmakers as national champions in the global economy.


There are four big global DRAM players, none Taiwanese: Samsung has nearly one-third of the DRAM market, followed by Hynix, then Elpida and Micron. Together, they account for 75 percent of sales. Taiwan's DRAM makers fill out the bottom rungs of the global top 10 of DRAM makers and collectively have less than a 15 percent market share measured in terms of revenue.

The bankruptcy earlier this year of Qimonda, the world's fourth largest memory chip maker, gave the global industry hope that the resulting capacity would relieve remaining players around the globe.

Qimonda failed after the German state of Saxony, nicknamed "Silicon Saxony" for its concentration of high-tech manufacturing, considered, then rejected a plan to provide loans to save the local employer.

The landscape of the computer industry is changing quickly as computers and mobile phones converge in function. Taiwan's leading firms have been racing to expand their role in the mobile market as personal computer matures. Investing more in computer-focused DRAM makers is the wrong bet for the future.

Quitting memory chips need not be the end of the road. In response to bruising Japanese competition, Intel Corp exited the industry more than 20 years ago in order to focus on the microprocessor market, a bet that led it eventually to become the world's biggest chipmaker.