Who wants Elpida and why? Analysts weigh in

April 10, 2012

April 10, 2012

The extraordinary auction for bankrupt Japanese DRAM supplier Elpida Memory Inc. is well underway.

The deadline for the second round of bidding reportedly occurred last Friday (April 6), with Micron Technology Inc., SK-Hynix Inc. and a joint bid from a Chinese investment firm and a U.S. private equity firm reportedly the remaining bidders. Toshiba Corp., which reportedly submitted a preliminary bid, has apparently bowed out, according to reports. 

The value of Elpida, which has been hemoraging money in recent quarters, is unclear. It's even more unclear the value of the firm in its current state of bankruptcy, a development that surprised many in the chip industry.

EE Times approached several prominent memory chip analysts and asked for their thoughts on who wants Elpida, why, and what impact the Elpida situation is likely to have on the DRAM business.

Mike Howard
IHS iSuppli

Of the handful of companies pursuing Elpida, Micron probably has the most to gain. Were it to gain control of Elpida 's production capacity Micron would likely see its market share nearly double to 20-25  percent and thereby challenge Hynix for the number two spot in DRAM. Micron would also gain access to Elpida 's mobile DRAM product portfolio, where it has lagged its competition. It is unlikely that Micron would use all of Elpida 's production capacity to make DRAM which would mean the industry would see an overall decrease in capacity—a good thing for all DRAM companies.

Toshiba, upon initial inspection, also stands to gain by buying Elpida. It could expand its domestic manufacturing capacity while bringing in house a strong mobile DRAM product lineup (integral to MCP production). The fact that both companies are also Japanese means that national interests may also be served in this matchup. On closer inspection, however, things look less rosy. Elpida 's Hiroshima fab is trailing Toshiba 's fabs and would require significant investment to get up to speed. Meanwhile, the lack of mobile DRAM hasn 't significantly impacted Toshiba 's NAND strategy thus far. From a cultural perspective, while both companies may be Japanese, there exist significant differences between the two and getting them to coexist presents real challenges. It was just ten years ago that Toshiba exited the DRAM business – it will likely require government pressure for them to get back in the game.

Hynix is a potential suitor, but stands to gain less than either Micron or Toshiba. It doesn't operate fabs in Taiwan or Japan (Elpida has operations in both countries while Micron has production in Taiwan and Toshiba in Japan) and it does have an excellent mobile DRAM portfolio. Hynix may now have the financial backing of SK Telecom, but its balance sheet is a mess.

While it's also possible that a hedge fund or someone else could buy Elpida, it makes little sense. DRAM is extremely competitive, the challenge for a third party to return Elpida to profitability would be extremely difficult.

In a logical world Micron would consolidate Elpida. Unfortunately (especially for prognosticators), DRAM is far from logical.

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