TOKYO The slide into bankruptcy protection of Japanese chipmaker Elpida Memory Inc provided an opening on Tuesday for rivals including Micron Technology and Samsung Electronics to grab its market share and assets.
Investors scrambled in Tokyo stock exchange trading to bailout of Elpida 6665.T by offering to sell 90 percent of the freely floated shares in Japan's only maker of dynamic random access memory, a chip largely used in PCs.
The world's third-biggest maker of DRAM said it had been pushed on Monday into filing for court protection from creditors, which are owed $5.6 billion, because concrete offers by potential partners had failed to materialize.
Elpida, which accounts for 12 percent of global DRAM output, has failed to manage a slump in prices for the chips and competition from rivals such as Samsung and Micron that was made worse by a surging yen, analysts said.
In addition, the company maintained a reliance on DRAM sales even as consumers switched to products that use flash memory, such as Apple Inc's iPad and other mobile devices. Its competitors were more diversified.
"Although this doesn't necessarily mean Elpida will disappear," said Kim Young-chan, an analyst at Shinhan Investment & Securities in Seoul, "one can quickly fall behind in the memory chip business if large investments aren't made at the right time, which will be very difficult for Elpida under court management."
Investors sniffed benefits for competitors such as Samsung Electronics Co (005930.KS) and Hynix Semiconductor (000660.KS), the world's top two DRAM makers , whose shares rose on Tuesday by 1.2 percent and 6.8 percent respectively.
Micron (MU.O) shares jumped 7.7 percent in U.S. trading on Monday as investors bet the only maker in the United States of DRAM would gain market share.
Ironically, Elpida was formed more than a decade ago by the merger of the struggling DRAM operations of several big Japanese chipmakers.
Media reports had suggested Elpida was seeking a capital alliance with Micron or Taiwanese partner Nanya Technology Corp (2408.TW). Japanese chipmakers were also considering tie ups of struggling operations under a government-supported national champion, sources said this month.
Nanya Vice President Bai Peilin said on Monday that the firm had no plans to enter into discussions with Elpida but suggested the firm was ready to grab market share.
"Elpida's clients should feel worried about their long term supply so they will shift to other suppliers. Since many of Elpida's clients are our clients we are ready to increase our supply to them," Bai said.
The bankruptcy court will scrutinize Elpida's debts and identify assets that can be sold off, giving Micron and other chipmakers several months to consider any bid for the Japanese firm.
"Someone else from outside could become a sponsor and acquire the company," said Takeo Miyamoto, an analyst at Deutsche Securities in Tokyo.
"Toshiba could seek talks," said Akira Minamikawa, chief analyst for research firm iSuppli in Japan.
Toshiba (6502.T), Japan's biggest maker of flash memory and which abandoned DRAM production a decade ago, has previously dismissed any tie-up with Elpida. Yet the company that emerges from bankruptcy may warrant a fresh look, Minamikawa said.
Japan's Trade Minister Yukio Edano and Elpida President Yukio Sakamoto both said on Monday they hoped the company could be rehabilitated in a process similar to U.S. Chapter 11 bankruptcy, which allows a company to emerge from creditor protection as a going concern.
Elpida shares and Japan producer shipments: link.reuters.com/zaf66s
Chipmakers share price comparison: link.reuters.com/feh46s
Elpida filed for creditor protection in the wake of a slump in the DRAM market. Contract prices fell 58 percent in 2011 and spot market prices dropped 70 percent, industry tracker DRAMeXchange said.
Elpida also spent heavily to try to keep pace with Samsung and Hynix, while a record-breaking rally in the yen against the U.S. dollar undercut the company's export competitiveness. The yen rose more than 5 percent against the dollar last year, while the Korean won slipped just over 1 percent.
Still, analysts noted these factors were not all specific to Elpida and other companies had coped. The management "didn't run the company in a proper fashion," Deutsche's Miyamoto said.
"When you look at Toshiba, it's a semiconductor company and they have factories in Japan, but they still make some profit, so what's the difference?" Miyamoto said.
Elpida's debt is the largest ever for a Japanese manufacturer seeking bankruptcy protection, according to corporate credit research firm Shoko Research.
Most immediately, it had deadlines in the next two months to repay 92 billion yen in bonds and loans. Its creditor banks are led by Bank of Tokyo Mitsubishi UFJ (8306.T), Sumitomo Mitsui Banking Corp (8316.T), Sumitomo Trust and Banking Co and Mizuho Corporate Bank (8411.T).
Japan's government, which has lent or invested 40 billion yen ($497 million) in Elpida, appears content for now for the courts to deal with the company's debts without another taxpayer bailout.
"What I can say now is that I will carefully watch with interest how the procedures move forward within the framework of the corporate rehabilitation law," Edano said at a press briefing in Tokyo.
"It is unclear whether Elpida Memory would have been able to operate in the same scale as today in mid- to long-term, say in the next three, five, or 10 years," he said.
In Tokyo, Elpida shares were marked down to 254 yen each, the daily limit. Sellers offered more than 195 million shares for sale, or 90 percent of the shares that are regularly traded.
However, the shares went untraded as sellers overwhelmed bidders by a factor of 1,700 and more.
"With less competition, the stronger South Korean DRAM makers should be able to better control supply-side risks by aligning their investment plans more closely with industry demand," Alvin Lim, an analyst at Fitch Ratings said in a report.
"Elpida will inevitably undergo massive restructuring, including likely sale of manufacturing facilities, although operations should continue in some form," he said.
The collapse of Elpida had wider ramifications as suppliers to the chip industry and Elpida affiliates fell.
Advantest Corp (6857.T), a major producer of chip testing equipment, shed 1.5 percent to close at 1,120 yen, while Shin-Etsu Chemical Co (4063.T), which makes silicon wafers for chipmaking, lost 1.3 percent to 4,340 yen. The benchmark Nikkei 225 index rose 0.9 percent.
Sumco Corp (3436.T), the world's No.2 maker of wafers used to make semiconductors, 0.8 percent higher after earlier falling 3.8 percent, while semiconductor manufacturer Tokyo Electron Ltd (8035.T) recovered from a 2 percent decline to end up 1 percent higher.
Tera Probe (6627.T) an Elpida chip testing affiliate was also untraded on a glut of sell orders, and was adjusted down 19 percent by its daily limit to 630 yen. ($1 = 80.46 yen)
(Reporting by Tim Kelly, Maki Shiraki, Dominic Lau, Yoko Kubota and Joonhee Yu; Editing by Richard Pullin and Neil Fullick)