Taiwan gov't scraps plans for chip merger

The Taiwanese government has ruled out plans to merge six local memory chipmakers, a move that signals a scaledown in the government's plans to stimulate its memory industry, news reports indicate.

A merger would be "too complicated and difficult", Taiwan's economic affairs minister Yiin Chii-ming, was quoted as saying in a Bloomberg report on Thursday.

The government had intended to establish a new state-backed company, called Taiwan Memory Company, from the consolidation within six months. Instead, the company will now focus on "obtaining technologies" and tap existing plants for its manufacturing.

News of the government's intentions were first unveiled early this month, alongside the appointment of industry veteran and former United Microelectronics honorary vice chairman John Hsuan as head of the new entity.

The ambitious plans were expected to drive the consolidation of six of the country's DRAM (dynamic random access memory) players: Inotera Memories, Nanya Technology, Powerchip Semiconductor and its subsidiary Rexchip Electronics, ProMos Technologies and Winbond Electronics. Citing figures from Dramexchange Technology, Bloomberg said these six chipmakers generated 23 percent of global DRAM sales in the fourth quarter of 2008, close to Samsung's contribution of 25 percent.

"It is wrong to assume we would take in these companies with all their debts and problems," Chen Chao-Yih, head of the economic ministry's industrial development bureau, said in the Bloomberg report. "Previously, [the government] didn't state this clearly."

According to the report, Hsuan had also raised doubts earlier, saying Taiwan Memory Company would not pursue a merger of domestic chipmakers. He added that the company may receive less than NT$30bn (£620m) in public funds.

Bevan Yeh, Taipei-based fund manager at Prudential Financial Securities Investment Trust Enterprise, told Bloomberg the reversal of plans could turn out to be beneficial. "The government started out with this grand plan, and now it must have realised that there was a huge gap between the dream and reality... This backpedalling may help the industry in the long run because it allows firms to go bankrupt, which would reduce oversupply and boost chip prices."

Following this latest development, Powerchip Semiconductor and Nanya will now pursue their own revival plans, the report stated. Powerchip and its subsidiary Rexchip have resumed merger talks with Japan's Elpida Memory, a company spokesperson said.

Nanya and its subsidiary Inotera, on the other hand, said they would continue their partnership with Micron Technology and do not intend to participate in the government's revised plan.

In another report, DigiTimes wrote that Nanya is expected to obtain a fund injection from its parent company, Formosa Plastics Group. Market sentiments pointed to the intervention as Formasa's realisation that Nanya may not receive any government funding. No mention was made of Inotera in the report.