info specific to rambus in bold near the end.
Date: 06/26 00:03 EST
Pact signals new game in DRAM
Jun. 25, 1999 (Electronic Engineering Times - CMP via COMTEX) -- Tokyo
- The restructuring of Japan's semiconductor industry took a huge step
forward last week, as the newly appointed chiefs of NEC Electronics and
Hitachi Ltd. struck a surprise alliance merging their core DRAM
businesses. Analysts praised the move as a dramatic and necessary
gambit to create a new No. 3 player in the face of a consolidating
memory industry. The upshot, though, may be to put further pressure on
second-tier DRAM makers such as Mitsubishi, Toshiba and Fujitsu.
Faced with corporate restructuring, strong global rivals, weak sales
and daunting development hurdles, NEC and Hitachi said they were
impelled by a sense of urgency to join fortunes after first sitting
down for talks in April. "It was a quick decision never made before
between Japanese companies like ours," said Koji Nishigaki, president
of NEC. "Such speed is essential for world competition," said Etsuhiko
Shoyama, president of Hitachi.
Some analysts here speculated last week that the powerful Ministry of
Trade and Industry had a hand in the deal. A MITI official declined to
confirm the reports, but called the move "advisable and necessary."
The alliance, the two companies expect, will speed technology
development, improve cost competitiveness by combining production
resources and secure the minimum production scale needed to make a
profit. "It is essential to increase cost competence by enlarging scale,
" said NEC's Nishigaki.
Together, the partners are aiming for a combined worldwide DRAM
market share of 20 percent. Today, NEC has about 11 percent and Hitachi
about 6. Mario Morales, director of semiconductor research for
International Data Corp. (Mountain View, Calif.), ranks the NEC/Hitachi
combo as No. 3 in the market, behind Samsung and LG/Hyundai.
That could spell trouble for smaller players. Second-tier suppliers
with less than 5 percent market share-including Toshiba, Mitsubishi and
Fujitsu-will be under the gun to cut costs or grow their business if
they are to survive, said memory analyst Steven Przybylski of the
Verdande Group (San Jose, Calif.).
While hailing the alliance, Satoru Oyama, a senior analyst at ABN
Amro Securities (Japan) Ltd., cautioned that both companies are wet
behind the ears when it comes to strategic partnerships. Hitachi has
had its share of failed alliances-notably a DRAM deal with Texas
Instruments Inc. that was scotched when TI sold its memory operation to
Micron Technology Inc. NEC has shied away from formal tie-ups. "There
is a doubt whether those who have had no experience of success in
alliances can carry out this alliance successfully," Oyama said.
Though details of the operation are subject to further discussion,
the two companies will soon begin collaborating on a 256-Mbit DRAM for
the 0.15-micron process generation, which they expect will be ready by
fall of 2000. The partners are also discussing ways to share capacity
and sell jointly developed devices under the same brand name.
Both companies already have 256-Mbit designs, but executives expect
no trouble merging them. "The device structures resemble each other, so
we expect that [a technology merger] will be easy," Nishigaki said.
Hitachi's Shoyama stressed the need to continue DRAM development even
in such a harsh pricing environment. "The importance of DRAMs will
never diminish in the next century," he said. "But these days we are
inferior in terms of price competition. This alliance is the victory
equation in DRAM."
As the first step, NEC and Hitachi will establish a joint-venture
company by year's end responsible for development and design. The pair
expects to assign a combined total of 1,000 engineers to the new
company, said Keiichi Shimakura, associate senior vice president of
NEC.
The two companies together spent about $417 million on DRAM R&D in
the last fiscal year. But NEC and Hitachi said their intention is not
to reduce costs or lay off employees. Instead, they hope to slash
development time, which they said is key to staying cost competitive.
"We want to double development speed by the combined budget," said
Nishigaki. "We want to shorten the development period to 1.5 years and
even one year to take the lead."
Hitachi and NEC reported large losses in semiconductors in the last
fiscal year, ending March 31. "The largest risk factor is the price of
DRAM," said Nishigaki. Shoyama admitted that much of Hitachi's overall
operating loss last fiscal year came from semiconductor sales, with
DRAMs alone accounting for about half of that.
Though erstwhile competitors, the two presidents are kindred spirits:
Both were appointed at the end of the last fiscal year and have
inherited the daunting task of turning around sprawling electronics
operations that are wallowing in red ink. Both have promised repeatedly
to take drastic action to pull their companies out of the morass. And
both see DRAMs as a strategic product.
Neither company would comment on how the alliance came about, but
some analysts suggested Hitachi-which arguably has the most to
gain-approached NEC. "Hitachi proposed [the deal to] NEC but NEC was
reluctant," said ABN Amro analyst Oyama. "But both recognized that
[alone], their human and financial resources are not enough to be
competitive in the world market, and Hitachi was able to persuade NEC."
Among Japanese companies, Hitachi has suffered the worst declines in
DRAM sales percentage-wise. According to Dataquest Inc., revenue
plummeted from $1.7 billion in 1997 to $903 million in 1998. NEC's DRAM
revenue dropped from $2.5 billion to $1.6 billion during the same
period, Dataquest said.
Thus, "The alliance will be especially positive for Hitachi," said
analyst Oyama.
There may have been an additional goad behind the scenes. MITI has
begun to take a more active role in prodding companies to abandon the
idea they can invest in a business with little regard for profit.
Sources said last week that MITI may have midwifed the deal between NEC
and Hitachi.
A MITI official would not comment except to say the ministry has
evaluated the alliance and endorses it. "We support the idea of
'selection and concentration,' a term often used by executives recently,
" said Shinpei Ago, deputy director of MITI's Industrial Electronics
Division. "After the bubble economy [in the late '80s], Japanese
industries as a whole still had excessive facilities and equipment. We
are going to help the industries slim down, removing the excess and
concentrating resources to increase competitiveness."
Ago said MITI is preparing a bill to submit to the Japanese Diet this
session that will encourage corporate restructuring by reducing taxes
that accompany mergers and acquisitions, making it easier for companies
to raise funds for reorganizations. "We are going to help industries so
that they can proceed with reorganizations efficiently without causing
a big pain on society," such as layoffs, Ago said.
Hitachi was involved in a DRAM alliance with Mitsubishi Electric and
Texas Instruments for 1-Gbit DRAMs, but that pact was dissolved once
Micron Technology (Boise, Idaho) bought TI's memory division last year.
A separate deal with LG Electronics in South Korea has also fallen by
the wayside since LG's recent acquisition by Hyundai.
Though it has worked with Lucent Technologies on process technology
and has an informal rapport with Samsung on DRAM technology, NEC has
until now lived by the mantra of self-sufficiency in semiconductors. A
crack appeared in that foundation last year, when NEC sought help from
dedicated foundries to alleviate a 0.25-micron capacity crunch. And
with the appointment of Nishigaki, who came from NEC's computer
division, the sense of provincialism went out the door.
"When he came in he said enough is enough," said an NEC spokesman.
"He's trying to send a message throughout the company that it's time to
change and nothing is untouchable."
Sherry Garber, memory analyst at Semico Research Corp. (Phoenix,
Ariz.), called the alliance a "reactive measure." The delayed
transition to Rambus memory has led to additional available capacity
for synchronous DRAM, she said, paired with falling prices. The average
price for the 64-Mbit DRAM chip, the most common part in the market,
has nosedived from about $9.50 in March to about $4.50 today, Garber
said. "This is a brutal market, and I have been saying for some time
that we need to see less capacity."
However, Garber sees a potential capacity crunch on the horizon,
resulting from lower investment levels over the past 18 months by most
of the major players. A combined NEC-Hitachi venture could be in a good
position to capitalize on that by the end of this year, she said.
Mergers and alliances have become commonplace in DRAMs. Besides the
TI-Micron and Hyundai-LG Semicon deals, Toshiba Corp. and Fujitsu Ltd.
allied on development of 1-Gbit DRAMs last December. And Mitsubishi and
Matsushita last year agreed to co-develop 0.15- and 0.13-micron process
technology, which will include embedded DRAM.
"When companies plunk down their billion dollars for a DRAM fab, they
are not likely to walk away from that investment," said Mark Ellsberry,
vice president of marketing for Hyundai Electronics America (San Jose).
"The DRAM companies really want to find a way to be more efficient, and
to stay in the game."
Japan's DRAM vendors have also started to outsource production. Just
last week, Mitsubishi announced it would transfer 0.2- and 0.18-micron
DRAM process technology to Vanguard International Semiconductor Corp.,
an affiliate of Taiwan Semiconductor Manufacturing Co. in which it
holds a significant share.
IDC analyst Morales said the merger of the two Japanese and two
Korean DRAM operations will probably not affect overall industry
capacity until the middle of next year. Meanwhile, DRAM prices are
expected to continue to fall, he said.
Morales said he expects most of the players will continue to split
their bets across Rambus, 133-MHz SDRAM and double-data-rate parts.
"Most companies will try to offer all the memory flavors," he said.
-Additional reporting by Anthony Cataldo, Rick Merritt and Will Wade.
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By: Yoshiko Hara
Copyright 1999 CMP Media Inc.
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