Elpida Bankruptcy Gives Korea DRAM Dominance
Elpida Memory’s $5.6 billion bankruptcy filing Monday effectively cedes complete dominance of the PC memory chip sector to S. Korean firms Samsung and Hynix at a time when mobile devices are cutting deeply into prospects for the PC industry.
Tokyo-based Elpida had courted prospective suitors in hopes of being rescued at the eleventh hour but none made a timely bid. The resulting bankruptcy is the biggest in Japan’s history by a wide margin.
The bankruptcy court will provide legal protection against creditors to whom Elpida owes $5.6 billion while the company seeks to reorganize itself into a streamlined entity that can compete on some level. But given the complete dominance that the move hands to S. Korea’s Samsung and Hynix, Elpida may end up being liquidated and possibly have its assets sold off in pieces.
For PC makers and consumers the Elpida bankruptcy will likely mean higher prices. Dynamic random-access memory (DRAM) chips make up a substantial cost of making personal computers. They are also the component most likely to be upgraded by users seeking to revitalize aging PCs or putting them through application-intensive uses.
Japanese companies dominated the DRAM market since the early 1980s. They began falling by the wayside in the late 1990s as S. Korea’s Samsung and Hyundai made a concerted, government-backed push into that sector. They were aggressive in recruiting Japanese semiconductor designers and engineers to help jump-start development efforts. Beginning around 2009 S. Korean firms got the upper hand in miniaturizing chips with breakthroughs in etching equipment.
Elpida was formed in 1999 when Japan’s leading DRAM makers — NEC and Hitachi — merged after Fujitsu abandoned the sector. But relentless pricing and technological competition from its Korean rivals, combined with a recent rapid shift toward mobile devices that rely more on flash memory — at which its Korean rivals also lead the market — continued driving down DRAM prices, effectively squeezing Elpida out of the market.
As of the end of last September Elpida had only a 12% share of the segment, behind Samsung’s 45% and Hynix’s 22%, according to market researcher iSuppli.
As a last-ditch effort at saving an industry deemed important to the Japanese economy as well as its national defense, Japan had invested 40 billion yen ($500 million) in Elpida in 2009.
Elpida’s fate in the DRAM segment is essentially the same as that of Japanese firms like Sony and Toshiba in the LCD display and mobile phone segments which are now increasingly dominated by Samsung and its Korean rival LG — in part due to large orders from their phone rival Apple.