Elpida seeks bankruptcy protection, $5.6 billion debt

TOKYO Mon Feb 27, 2012 3:22pm EST

An Elpida DRAM chip (front) is pictured in Taipei in this November 6, 2009 file photo. REUTERS/Nicky Loh/Files

An Elpida DRAM chip (front) is pictured in Taipei in this November 6, 2009 file photo.

Credit: Reuters/Nicky Loh/Files

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TOKYO (Reuters) - Elpida Memory Inc filed for protection from creditors on Monday with $5.6 billion in debt, the biggest bankruptcy filing by a Japanese manufacturer, after potential partners failed to come through to rescue the cash-strapped chipmaker.

Japan, which had lent or invested 40 billion yen ($500 million) with the country's last maker of PC memory chips to help it through the post-Lehman Brothers crisis, appeared to throw in the towel this time as the company faces slumping prices and relentless competition from well-funded Korean rivals.

But both Japan's trade minister and Elpida's president expressed hope that the company could be rehabilitated, in a process similar to U.S. Chapter 11 bankruptcy protection, and that Japan could retain a presence in the dynamic random-access memory chip sector that it once dominated.

"We're hoping it can rebuild its operations as quickly as possible," Trade Minister Yukio Edano told a news conference.

Elpida has been struggling with weak chip prices in a sluggish global economy and as consumers increasingly bypass PCs for products like Apple Inc's iPad, which primarily uses flash memory instead of DRAM.

It was also saddled with heavy capital spending to keep pace with market leaders Samsung Electronics Co and Hynix Semiconductor Inc, while a strong yen undercut its global competitiveness.

Shares of U.S. memory chipmaker Micron Technology Inc surged 7.8 percent to $8.57 on bets that Elpida's DRAM output, estimated to be about 12 percent of global production, could permanently disappear, pushing up prices in the beleaguered industry.

"All of that capacity could go away," said Raymond James analyst Hans Mosesmann. "We'll know in next couple of months."

With Asian rivals keen to grab Elpida's business, doubts linger over its future, even if Japan tries in earnest to rehabilitate it like Japan Airlines, the flagship carrier which emerged from bankruptcy last March and is expected to relist its shares this year.

"Elpida's clients should feel worried about their long-term supply, so they will shift to other suppliers," said Bai Peilin, vice president at Taiwan's Nanya Technology.

"Since many of Elpida's clients are our clients, we are ready to increase our supply to them."

Lee Seung-woo, an analyst at Shinyoung Securities in Seoul, added: "Elpida is shrinking and major customers will defect from the company and move to South Korean companies ... This is not a bad picture for South Korean chipmakers."

Elpida's announcement was made after the close of trading on the Tokyo Stock Exchange. The company's shares will be delisted on March 28, the exchange said.

RECORD DEBT

Elpida's debt was the largest ever for a Japanese manufacturer seeking bankruptcy protection, corporate credit research firm Shoko Research said.

The company, formed more than a decade ago by the merger of several big Japanese chipmakers' struggling DRAM operations, is scrambling to meet deadlines in the next two months to repay 92 billion yen in bonds and loans.

Lenders to Elpida, which is a supplier to Apple as well as a victim of the iPad's success, had given the company until this month to devise a turnaround plan.

One trader said the filing was expected to have only limited impact on its creditor banks, led by Bank of Tokyo Mitsubishi UFJ, Sumitomo Mitsui Banking Corp, Sumitomo Trust and Banking Co and Mizuho Corporate Bank.

An official at one of Elpida's lenders, speaking on condition of anonymity, said he was surprised at how quickly it gave up and opted for a bankruptcy filing when it still had some financial leeway, but said it would be easier to rehabilitate by going through the process now, before all of its money runs out.

Elpida President Yukio Sakamoto, who plans to stay on to run the company as it goes through the rehabilitation process, said it had been pushed into the bankruptcy filing when offers from potential partners failed to come through.

"We had been expecting various offers by today but what we got was not concrete - just intentions - and I thought it was a bit risky for the revival of our company," he told a news conference.

He declined to elaborate, but speculation had mounted that Elpida was seeking a deal with Micron and its Taiwanese partner, Nanya Technology Corp.

The sudden death of Micron CEO Steve Appleton in a plane crash this month raised uncertainty about a possible deal.

Sources this month also said several big Japanese chipmakers were in talks to consolidate some of their struggling operations under a government-supported national champion, bringing in California-based GlobalFoundries to run Japanese plants in a deal that could also include Elpida.

But there remain doubts about whether Elpida is worth saving.

"The world has DRAM coming out of its ears and being produced a lot cheaper than Japan can produce them," said Darrel Whitten, managing director of Investor Networks Inc, an investor relations consultancy.

"The question is whether you pour more good money after bad or try to encourage something that does appear to be working strategically."

Elpida ranked third in the global DRAM market in the July-September quarter, with a 12 percent share, trailing Samsung's 45 percent share and Hynix's 22 percent, data from market research firm iSuppli shows.

According to DRAMeXchange, an industry tracker, DRAM contract prices fell 58 percent last year, while spot prices decreased 70 percent.

"Elpida's filing will signal to DRAM customers that market DRAM prices need to increase," Stifel Nicolaus analyst Kevin Cassidy said in a note to clients. "While the PC (makers) have benefited from the DRAM industry selling below costs over the years, the reality is that even DRAM manufacturers need to be profitable."

Elpida's factories could be bought by the likes of GlobalFoundries, which would convert production to processors and other kinds of chips; and by Micron, which would likely switch production from DRAM to NAND chips, Mosesmann said.

Shares in Elpida, one of the most heavily shorted stocks in Tokyo, have been buffeted over the past several months by rumors and media reports of tie-up talks and collapsed deals.

They slumped to a record low of 294 yen two weeks ago, after the company warned it might not be able to continue as a going concern, only to rally again as high as 368 yen late last week, a gain of more than a quarter.

They ended on Monday before the bankruptcy filing news at 334 yen, up 0.6 percent on the day.

($1=80.6850 yen)

(Additional reporting by Nobuhiro Kubo, Mayumi Negishi, Taro Fuse, James Topham, Dominic Lau; Linda Sieg in Tokyo, Hyun Joo Jin in Seoul, Clare Jim in Taipei and Noel Randewich in San Francisco; Writing by Edmund Klamann; Editing by Neil Fullick, Hans-Juergen Peters and Matthew Lewis)

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