Will Intel spark Japan's DRAM turnaround?
Feb. 05, 1999 (Electronic Buyers News - CMP via COMTEX) -- Silicon
Valley- As the sun rises on a new fiscal year, Japan's DRAM makers may
be looking for a helping hand to assist them in keeping pace with the
global chip market.
Short on working capital, these industry icons have lost much of the
luster that set them apart during the boom years of the DRAM gold rush.
Now, as they prepare their annual budgets for the start of the April 1
corporate year, executives at Japan's top DRAM companies are
entertaining options that would have been anathema just a few years
ago.
Toshiba Corp. confirmed last week that it is seriously considering an
offer from Intel Corp. to help it meet 1999 DRAM production goals, and
NEC Corp. said it, too, is open to outside, even foreign, investment.
Mitsubishi Electric Corp., by contrast, rejected an Intel offer last
week, saying that it is able to fulfill production plans unassisted.
Whatever the outcome, the investment planning currently under way at
Japan's DRAM companies could have a serious effect on this year's DRAM
market, which is poised to transition to the new, high-speed memory
interface known as Direct Rambus DRAM. Companies willing to expend the
capital needed to shift to Direct RDRAM could lay claim to the volume
memory-IC market, while those on the sidelines may have to content
themselves with trailing-edge, lower-margin business, observers said.
"The Japanese have basically adopted an attitude of extreme
conservatism with respect to DRAM, which means the propensity to invest
is very, very low," said Victor deDios of research firm deDios &
Associates, Newark, Calif. "So anyone pushing a new technology into the
market, which in this case is Intel with Direct RDRAM, has to ante up
the dollars."
Toshiba, which already produces limited quantities of 72-Mbit Rambus
chips, will shift to 128- and 144-Mbit devices later this year. But the
company so far has trimmed about $100 million from this year's $1
billion investment budget and may have trouble securing new capital
amid a nationwide recession, according to analysts.
"We did receive a proposal to fund production of Rambus DRAM, but we
cannot comment further than that," said a Toshiba spokesman, who
confirmed that Intel is behind the cash offer. "We are just starting to
look at it."
Though it may be the first Japanese company to publicly acknowledge
such an offer, Toshiba's position is hardly unique in the industry.
Last October, Intel made a $500 million investment in Boise,
Idaho-based Micron Technology Inc., which swapped the rights to 6% of
its shares for a promise to aggressively ramp Direct RDRAM in 1999.
More recently, Intel extended a $100 million incentive to Samsung
Electronics Co. Ltd. in exchange for convertible bonds, representing
about 1% of Samsung's outstanding common stock. Toshiba would not
comment on the cash value of Intel's latest proposal.
With decidedly deep pockets, Intel has approached other memory
vendors as well, according to industry sources. While it would not
comment specifically, NEC said it would consider an equity investment
if it helped the company in its Direct RDRAM ramp.
"Given the tight situation at the moment, we're prepared to think
about third-party investment to help with the production of Direct
Rambus," a company spokesman said. "Who, what, and where, we're not
prepared to talk about at the moment. ... But I think the Japanese DRAM
industry has to seriously think about [outside investment] given the
potential demand for Direct Rambus by the end of the year."
In all, Intel could spend as much as $1 billion to grease the
industry's shift to Direct RDRAM, which is expected to ship in about
15% of all PCs by the end of 1999, according to deDios. Intel would not
comment on its investment strategy.
At least one Japanese DRAM maker, Mitsubishi, formally rejected an
Intel offer last week, but said a future deal is possible.
"Although Mitsubishi Electric was approached by Intel with regard to
possible financing measures for production-related investments, we
declined due to the fact that we are able to achieve our current
production plan with our present capital investment levels," said
Koichi Nagasawa, general manager of the company's chip group, in a
statement.
DRAM makers Hitachi Ltd. and Fujitsu Ltd. would not comment on their
investment plans, although Fujitsu said it has not been approached by
Intel.
Part of the problem for Intel in pitching Rambus stems from
associated costs; for example, Rambus will require new packaging and
test equipment. With many of Japan's chip makers expecting to lose
money this year (Hitachi last week increased its anticipated year-end
loss to a whopping $3.35 billion), companies there may have trouble
single-handedly fielding the manufacturing infrastructure required to
ramp Rambus.
"The Japanese market, along with everyone else, is hurting because of
the ASP decline over the last couple of years," said Sherry Garber, an
analyst with Semico Research Corp., Phoenix. "That's why you've heard
repeatedly of companies backing off on new investment. In order to
bring Rambus to market, the back-end cost of new packaging and testing
equipment is substantial-about $100 million and up."
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