Elpida seeks tie-up with Taiwanese rival Nanya: report

TOKYO/TAIPEI Thu Dec 22, 2011 7:07am EST

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TOKYO/TAIPEI (Reuters) - Japanese chipmaker Elpida Memory Inc will start tie-up talks next month with Taiwanese rival Nanya Technology Corp, with a view to a possible merger, the Nikkei business daily said on Thursday.

The report comes as Japan's last remaining player in the dynamic random-access memory (DRAM) market struggles with tumbling prices and loss of market share to South Korea's better-funded giants.

Samsung Electronics boosted its market share to 45 percent in July-September, according to research firm IHS iSuppli.

Hynix Semiconductor had a 21.5 percent share in the same period, while Elpida was a distant third with 12.1 percent, level with Micron Technology of the United States, and Nanya is smaller still.

In a statement, Elpida said the Nikkei report was not based on a company announcement, adding that it was considering various options, including refinancing debt and having clients pay for orders in advance.

Elpida had about 390 billion yen ($5 billion) in interest-bearing debt as of September 30, with a net debt-to-equity ratio of 1.2. It must roll over about 77 billion yen in debt next April, the Nikkei said.

BARRIERS TO COOPERATION

Nanya's chairman said the two firms were not in talks on cooperation, adding that they are locked in a legal battle over patents.

Nanya's existing partnership with Micron might be a further barrier to a tie-up with Elpida, analysts said.

Elpida and Nanya will discuss proposals including the creation of a holding company under which the two firms would operate, the Nikkei said. Nanya is owned by Formosa Plastics Group.

The Japanese firm hopes to pin down a deal by the end of the financial year on March 31, which marks the end of a government-led restructuring plan under which Elpida received 30 billion yen in financing from the Development Bank of Japan.

A merger would likely mean most production would take place in Taiwan to avoid the effect of the strong yen, while development would be done mostly in Japan, the Nikkei added.

Elpida might sell off the outdated chipmaking equipment at its Hiroshima plant, the paper said.

Some analysts and bankers were skeptical about the chances of Elpida entering such a partnership.

"I think the chances of cooperation are low because the machinery, technologies and R&D the two companies use are different," said Bevan Yeh, a senior fund manager at Prudential Financial Securities Investment Trust in Taiwan.

"It would take at least one quarter to adjust the machinery."

Shares in Elpida rose more than 6 percent in early Tokyo trading following the report, but dropped back. By mid-afternoon, they were down 0.3 percent, compared with a 0.7 percent fall in the Nikkei average.

The two makers of DRAM chips, used in personal computers, have been suffering amid the rise of tablets, which use flash memory, and the poor economic environment.

Prices for DDR3 DRAMs plunged from $1.5 to about $0.90 between July and October this year, Elpida said.

Elpida, formed in 1999 through the merger of the DRAM businesses of Hitachi Ltd and NEC, posted an operating loss of 44.7 billion yen for July-September, while Nanya has posted losses for seven straight quarters.

($1 = 77.9750 Japanese yen)

(Additional reporting by Nobuhiro Kubo and Taiga Uranaka in TOKYO and Jeanny Kao in TAIPEI; Editing by Vinu Pilakkott)

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