Elpida eyes Taiwan to hedge yen woes; shares jump

Reuters

* Elpida to take steps to fight soaring yen, weak chip market

* Elpida shares jump 5 pct, Taiwan chip shares rise (Adds more analyst comment and background, updates share prices)

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TOKYO/TAIPEI, Sept 15 (Reuters) - Elpida Memory Inc , Japan's biggest maker of DRAM memory chips, is considering shifting some production to Taiwan to cope with a currency near record highs and to survive in a dwindling market.

The world's No. 3 dynamic random-access memory maker behind Samsung Electronics and Hynix Semiconductor , is battling to boost its competitiveness in a market torn by oversupply and depressed prices.

DRAM prices have fallen by about a third over the past year as key PC client makers see demand eroded by consumers switching to tablet computers. The global DRAM industry, which caters mainly to PCs, fell 24.3 percent to $8.1 billion in the second quarter, according to Taipei-based tech research firm TrendForce.

"Elpida has recently done lot of refinancing, preparing itself for opportunities opening up," said Fubon Bank's analyst William Wang in Taipei. "Under fierce competition, PC DRAM market may have only two to three players left in the end, so it is important to seize any market share."

Elpida's shares rose as much as 9.9 percent in early trading in Tokyo and ended 5.0 percent higher. Its depositary receipts in Taiwan rose 7 percent limit up.

The company, which tumbled to a loss in April-June, said if the yen stays strong and the market weak, it may transfer production of cutting-edge chips to subsidiary Rexchip Electronics Corp -- its joint venture with Taiwan's Powerchip .

Japan's sole maker of DRAM chips has a 64.7 percent stake in Rexchip and also has an outsourcing agreement with Taiwanese firms ProMOS Technologies and Winbond Electronics Corp . Shares in Powerchip were up 5.9 percent and Winbond gained 4.3 percent.

Elpida did not say how much or when it may shift manufacturing to plants in Taiwan, although the Nikkei business daily reported that it was preparing to shutter 40 percent of output in Japan.

"We have decided on an emergency response because of record yen levels and the quickly worsening market for our main DRAM product," Elpida said in a statement. "We see the strong yen continuing for the time being."

Elpida, which raised 70 billion yen ($914 million) in July to finance expansion in cutting-edge chips for smartphones and tablet PCs, has repeatedly disappointed investors by raising capital and diluting shares.

In the second quarter, Samsung took up 41.4 percent of the global DRAM market revenue, while Hynix accounted for 22.8 percent, and Elpida and Micro owned 14.4 percent and 10.8 percent shares respectively, according to TrendForce. Taiwanese firms made up the remainder.

Shares of Elpida, which posted an operating loss of 3.8 billion yen last quarter against an operating profit of 44.4 billion yen a year ago, have halved in value since the start of the business year. The Dow Jones US Semiconductor Index has shed 10 percent in the same period.

"The Taiwan dollar tends to move in tandem with the U.S. dollar, so the company can hedge against the U.S. dollar's fall," said Takeo Miyamoto, an analyst at Deutsche Securities in Tokyo. "Whether the move would benefit the company's bottom line will likely depend on DRAM price movements," he said.

NOT ALONE

The product shift could prove politically volatile for the chipmaker, which received government-backed funds during the last major downturn in 2009, and open it up to accusations that it is giving potential rivals Japanese technology.

Throughout Japan, manufacturers are considering shifting production abroad as the yen's advance shaves profits. The yen hit a record high against the dollar last month and traded at 76.70 on Thursday, up nearly 11 percent from around 85 yen a year ago.

Nearly two-thirds of manufacturers are suffering from the impact of the strong yen as the currency's rise threatens to derail Japan's economic recovery from the March earthquake, a Reuters poll showed on Thursday.

LCD maker Sharp Corp and automakers lead by Toyota Motor that maintain a major part of their output at home are also under pressure to pare costs or further quit Japan as the yen gains.

"It can't be helped that chip makers will follow the example of carmakers and move their production offshore, out of Japan, in an effort to reduce their costs," said Tomomi Yamashita, fund manager at Shinkin Asset Management Co.

Elpida has been vocal about consolidating Japanese and Taiwanese DRAM players to boost competitiveness.

Rexchip makes mainly chips for PCs, while Elpida's Hiroshima factory has focused on mobile DRAM, although it also makes commodity DRAM.

Elpida said it will focus on more profitable 4-gigabit DRAM chips, instead of lower-capacity 2-gigabit DRAM, and switch to advanced 30-nanometre manufacturing processes from 40-nanometre processes to cut costs.

Using smaller circuitry packs more power onto each sliver of silicon, cutting costs while boosting output, which in turn weighs on chip prices and squeezes smaller rivals.

It also plans to expand dollar-based procurement to ease the impact from currency swings.

In a recent report, TrendForce said DRAM prices had showed signs of stabilizing in the first half of September, benefitting from production cuts by Japanese and Taiwanese manufacturers.

"Although the market currently remains in a state of oversupply, production cuts across the board have improved the DRAM oversupply situation and eased the price decline," it said. ($1 = 76.720 Japanese Yen) (Additional reporting by Taiga Uranaka Ayai Tomisawa and Lisa Twaronite in TOKYO and Eileen Anupa Soreng in BANGALORE; Writing by Tim Kelly; Editing by Michael Watson and Anshuman Daga)

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