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EDITORIAL: Wu
revisits 2008 DRAM drama
Last week, the government pledged to tackle the nation¡¦s ailing DRAM, LCD, LED
and solar energy sectors, which are suffering deep losses as demand falls amid
the eurozone debt crisis and a staggering US economy. However, you cannot expect
new tricks from an old dog. Premier Wu Den-yih¡¦s (§d´°¸q) solution is to push for
consolidation, a proposal that was shelved in 2008, when the DRAM sector was
suffering its worst industrial slump.
Wu¡¦s theory is that DRAM consolidation would ease the glut and put an end to
price wars. He is still pinning his hopes on re-launching an integration program
with Japanese memory chipmaker Elpida Memory to rescue shaky local PC DRAM
companies. With an eye on the Jan. 14 presidential elections, Wu, President Ma
Ying-jeou¡¦s (°¨^¤E) running mate, said the government hopes to come up with more
substantive measures within a month.
Wu¡¦s approach is not innovative. Many recall the DRAM consolidation efforts of
two years ago, which were initiated by the government, but turned into a fiasco
after the legislature, although dominated by the Chinese Nationalist Party [KMT],
voted down a proposal to inject a paltry NT$3 billion (US$99.4 million) in cash
into Taiwan Memory to kickstart the program.
Since the last downturn, PC DRAM makers have been caught in a vicious cycle,
with the latest economic slump coming too soon to allow chipmakers enough time
to generate the cash needed to stave off current hardships: In the first three
quarters alone, the top local PC DRAM companies have lost NT$57.13 billion. This
figure does not include losses from debt-ridden ProMOS Technologies, which has
been told to re-state its financial statements.
DRAM companies appear to have given up on seeking government aid. Last week,
Powerchip Technology chairman Frank Huang (¶À±R¤¯) said not one government official
has approached the company to discuss consolidation.
Powerchip has decided to gradually exit the industry altogether and look to new
fields, such as less advanced NAND flash memory chips, for growth, Huang said.
¡§We are not a DRAM company anymore,¡¨ he said, adding that 60 percent of the
company¡¦s revenues come from chips other than DRAM.
From January, DRAM chips would only account for about 20 percent of Powerchip¡¦s
capacity, he said.
Wu is holding on to the forlorn hope that the nation¡¦s two biggest LCD panel
makers, AU Optronics (AUO) and Chimei Innolux, will start discussing his
proposal of combining operations to fend off competition from Samsung
Electronics.
This is not the first time there has been speculation about an AUO-Chimei
merger. Whenever things get bad for the LCD industry, such speculation emerges.
The reason it has never happened is the stark difference between their corporate
cultures ¡X and that poses the biggest challenge to any potential consolidation.
AUO and Chimei also know that consolidation is not a cure-all. They have to find
new applications and create new products to capitalize on the huge capacities
they have built up over the years.
To combat the glut and sagging demand, AUO and Chimei are shipping less-advanced
and thicker LCD panels to emerging markets like India, Brazil and Russia,
targeting first-time LCD TV buyers.
The government¡¦s new consolidation proposals are unrealistic and look little
more than lip service to a badly thought out idea. The government should be more
pragmatic and look to industry experts for ideas. It should also speed up the
adoption of LED chips in street lamps and public venues as suggested repeatedly
by Robert Yeh (¸±G¤Ò), chairman of LED chip packager Everlight Electronics.
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