Elpida, world's third-largest DRAM maker, files for bankruptcy

The Japanese chip manufacturer said it had US$5.5 billion in debt last year as a result of investments, price declines and the Thai floods

Elpida Memory, the world's third-largest DRAM maker, filed for bankruptcy Monday in a Tokyo court, saying it had accumulated debts of 448 billion yen (US$5.5 billion) through March of last year.

The company said it was unable to recoup massive investments in production capacity in 2006 and 2007, which led to an oversupply that sent unit prices lower. The global economic downturn then hit in 2008, and other factors such as the strong Japanese yen and flooding in Thailand last year were more than it could overcome.

While Elpida's fate is still unknown, analysts say that if the company were to cease production it could force computer makers to raise prices or lower the memory capacity of their products. This would also affect the growing smartphone market, where margins are razor thin, as the company is also a major manufacturer of mobile DRAM.

"DRAM market share will be even more unbalanced, dominated by makers with leading technology. The DRAM market will be one step closer to an oligopolistic state, thereby leaving PC OEMs with less buying power" if Elpida exits the industry, market data vendor DRAMeXchange said in a research note earlier this month.

Elpida will search for an outside investor and attempt to turn around its business, it said. The company's struggles are nothing new. In 2009, it had similar troubles and secured 110 billion yen in loans from large Japanese banks and a government entity, and the industry has long predicted it would seek a partner, such as DRAM manufacturer Micron, or exit the business entirely.

The filing comes as DRAM prices continue a years-long decline caused by a severe oversupply. The price for the most common DRAM chips recently fell to less than half of what it was a year earlier, according to research firm iSuppli.

As conditions tighten, smaller market players have been increasingly squeezed out, and now just four companies account for 99 percent of market share, with Samsung holding over half of the market. In 2009, Germany's Qimonda filed for bankruptcy and liquidated its holdings.

Elpida was formed in 1999 in a merger of the DRAM businesses of NEC and Hitachi. The tie-up came as other Japanese companies, including Fujitsu and Toshiba, quit the DRAM business entirely.

The Japanese government, which has propped up the company previously, is loath to lose its sole national manufacturer and effectively cede the industry to South Korea.

Elpida had 15.4 percent of the DRAM market in the fourth quarter of 2011, according to DRAMExchange. That put it behind Samsung, at 53 percent, and Hynix, at 22.9 percent. A merger with Micron, the fourth-largest manufacturer, would form an entity with about the same market share as Hynix.

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Jay Alabaster

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