MEMORY MAKER Elpida will issue a boat load of fresh shares and bonds in a bid to raise close to $1bn in order to get into the smartphone memory chip business.
Elpida is the third largest DRAM manufacturer and last year it sold a stake in the US memory module manufacturer Kingston in order to raise cash for its business. Now the latest stock offering and convertible bond offer is a bid to move away from DRAM manufacturing and into the growing NAND flash memory business.
Following last week's news that number two DRAM manufacturer, Hynix, was about to report that its buyout talks with Hyundai Heavy Industries are about to fall apart, Elpida's latest attempt to drum up some cash shows just how bad things are looking in the DRAM market. According to Reuters, DRAM makers in the first three quarters of 2011 suffered close to a 30 per cent drop in revenue due to falling PC sales, and its source said, "Investors realize that semiconductors are capital intensive. What they want to know is how and when will the investment be turned into profit."
Elpida will use the money it raises to build NAND flash memory chips that end up in smartphones and tablets. Unlike PCs, sales of both are expected to grow, although research by IDC has recently shown that tablet take-up has been less than expected. That said, from Elpida's point of view the same memory can end up being used in all kinds of smartphones, and the future of those devices is looking undeniably bright.
The problem for DRAM manufacturers such as Samsung, Hynix, Elpida and Micron is not just the huge costs of building fab plants and tooling them, it is the fact that these plants have to be retooled every few years to stay competitive. Now, with demand for DRAM drying up, even the big outfits have to look at diversifying in order to stay in business. µ
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