Elpida may gain life support as chips slump

METI expected to continue aid for 'flagship' firm facing massive debt

Bloomberg

Elpida Memory Inc., facing a deadline to repay ¥93.5 billion in debt by April, may gain financial support for the second time in three years as the government seeks to keep the company alive amid a slump in the chip market.

The Ministry of Economy, Trade and Industry will probably extend support, now set to expire in March, for Elpida, said Yoshihiro Nakatani, a senior fund manager at Asahi Life Asset Management Co.

“The ministry can’t let Elpida go under, as it rescued the company under the banner of a Japanese flagship,” Nakatani, who manages ¥95 billion and doesn’t hold Elpida shares, said in an interview. “Japanese electronics makers are using Elpida’s DRAM, so it would mean trouble.”

Tokyo-based Elpida is the world’s third-largest maker of DRAM chips.

Demand for DRAM chips, which speed up processing in computers by temporarily storing data, has slumped as PC sales slowed, causing Elpida to post a fourth straight quarterly loss for the period that ended Sept. 30.

There have been media reports that Elpida may tie up with Micron Technology Inc. and Nanya Technology Corp. as it seeks to avoid a failure to refinance its debt, which could cut off supply to clients including Apple Inc.

Elpida needs ¥92 billion to repay bonds and loans by April, according to a company filing in June. Cash totaled ¥100.2 billion as of Sept. 30, the company said in October.

The government will likely support Elpida, given its previous commitment to other crippled companies, according to Amir Anvarzadeh, a Singapore-based manager for Asian equity sales at BGC Partners.

He cited the examples of Tokyo Electric Power Co., which has stayed afloat with government support since the disaster struck at the Fukushima No. 1 nuclear plant, and camera maker Olympus Corp., which kept its stock-market listing amid an accounting scandal. Tepco received ¥2 trillion in emergency loans last year related to the Fukushima disaster.

“They will not even let Tepco or the less strategically placed Olympus go under,” Anvarzadeh said. “Even assuming the worst, the costs involved to keep Elpida solvent would be insignificant.”

Japan Airlines Corp. received four government bailouts in nine years before filing for bankruptcy in January 2010. The company emerged from bankruptcy protection last year.

METI chief Yukio Edano said Jan. 6 that Elpida is considering various plans to improve its cost structure.

“The industry is in a severe environment as the yen rises and chip prices fall,” he said at the time.

He declined to say during a news conference Friday whether METI will extend its support.

Elpida declined in an email Wednesday to comment on the outlook for refinancing or government support. The company is in talks with banks to refinance its borrowing and discussing advance payments and capital investments with customers, it said in a statement Jan. 18.

The chip-maker’s main lenders told it to craft a government-approved restructuring plan to receive continued financial support, the Yomiuri Shimbun reported Jan. 7, without saying where it got the information. The Sankei Shimbun reported Wednesday morning that Elpida was poised to present a plan to banks, also without citing anyone.

Keeping Elpida in business is also important to its clients, BGC’s Anvarzadeh said. It is “one of the primary suppliers” of mobile DRAM chips for Apple’s iPad2 and iPhone 4, giving the U.S. company an incentive to support Elpida if necessary, he said.

“Providing Elpida with, say, ¥50 billion in equity injection is pocket change for the U.S. giant to keep its supplies secure,” Anvarzadeh said.

Apple has $97.6 billion in cash and investments, money it’s “actively” discussing how to use, Chief Financial Officer Peter Oppenheimer said during a conference call Wednesday. That could include supply-chain investments, he said.

Steve Dowling, a spokesman for Apple, didn’t immediately return a call seeking comment on Elpida.

Elpida may ask the Innovation Network Corp., a government-affiliated technology fund, to invest ¥100 billion as the company needs to buy equipment to improve its chips, the Yomiuri reported Wednesday.

“I assume there’s a 70 to 80 percent chance that Elpida can get refinancing,” Haruo Sato, an analyst at Tokai Tokyo Securities Co., said. “Forming an alliance would be positive if that doesn’t require investing in other companies or spending on facilities.”

The Yomiuri report also said Elpida is in merger talks with Micron and Nanya. The report “isn’t factual,” Elpida said in a statement Wednesday. Dan Francisco, a spokesman for Idaho-based Micron, declined comment, and calls placed to Taiwan-based Nanya during a Taiwanese public holiday went unanswered.

“Elpida needs to find a business partner to convince banks,” said Yuichi Ishida, a Tokyo-based analyst at Mizuho Investors Securities Co.

The company got ¥140 billion in financial aid and loans from the government and banks in 2009 after falling chip prices caused it to post a record loss, as METI said Japan needed to have a domestic DRAM manufacturer to prevent supply disruptions.

Elpida was formed through the 1999 merger of NEC Corp.’s and Hitachi Ltd.’s memory businesses. Fujitsu Ltd. abandoned the business that year, and Toshiba Corp. announced its withdrawal in 2001 to focus more on making NAND flash memory chips used in tablet computers and smartphones.

Samsung controlled 45 percent of the DRAM market by value in the third quarter, according to IHS Inc.’s iSuppli. Hynix held a 21.5 percent share, followed by Elpida’s 12.1 percent, the researcher said. Micron had the same share as Elpida, with $2 million less in revenue, and Nanya had a 3.6 percent share, according to iSuppli.