Chipmakers struggle to finance operations amid slumping demand
Lower prices and inventory carrying costs may drive consolidation trend
By Dave Hannon -- Purchasing, 12/30/2008 8:09:00 PM
The dramatic downturn in demand and price for semiconductors has a host of chipmakers scrambling to adjust capacity and secure loans and financing to ride out losses in what could be an extended slump that drives chip industry consolidation.
As Purchasing.com reported earlier this month, researcher Gartner Inc. forecasts worldwide semiconductor revenue will fall 16.2% to $219.2 billion in 2009, marking the first time in history the chip industry had two consecutive years of negative growth. In the U.S., DRAM maker Micron reported a net loss of more than $700 million in its most recent quarter, driven in large part by slumping chip prices and spiraling inventory costs.
According to a company statement, the Micron incurred a charge of $369 million to “write down the value of work in process and finished goods inventories of memory products to their estimated market values” while “average selling prices for the company's memory products decreased 34% and 24% for DRAM and NAND flash products, respectively.”
In a recent report, Wachovia analyst David Wong said Boise, Idaho-based Micron will need to seek funding over the next two to three quarters. And, in an effort to adjust its capacity to market demand, AMD in Sunnyvale, Calif. this week raised the number of people it laid off in the fourth quarter under its supply chain reorganization plan.
But the chip industry’s issues are not limited to North America. South Korea’s Hynix Semiconductor recently secured $600 million in bank loans. Germany’s Qimonda recently lined up more than $450 million in loans from its parent Infineon and governmental sources, with an option to receive more government aid. Reuters reports that Qimonda warned this month that it could face a cash crunch by the end of the first quarter of 2009 if it did not find an investor.
And as the list of struggling chipmakers grows, there will be more instances of the strong acquiring the weak. Bloomberg reported this week that Japan’s Elpida has begun merger talks with Taiwan’s Powerchip Semiconductor Corp., Rexchip and ProMOS. Both ProMOS and Powerchip asked for a government bailouts this month.
“The bailout (of Powerchip) won't be good news for the industry because that would mean nobody will be leaving in the short term when the sector needs to streamline or consolidate," Kenneth Lee, a semiconductor analyst for Primasia based in Taipei, tells Reuters.
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