A renaissance in DRAM: Mitsubishi sells DRAM to Elpida, ties knot with Hitachi - News

Electronic News, Oct 7, 2002 by Alex Romanelli

In what is hoped to boost a flagging DRAM industry and the Japanese economy, Elpida Memory Inc. will acquire the DRAM operations of Mitsubishi Electric Corp., edging itself closer to the bigger, established memory players and halting the steady decline of its market share.

The sale is part of a major change underway at Mitsubishi, which also is merging its non-DRAM chip operations with Hitachi Ltd. to form a brand new company.

The Mitsubishi-Elpida deal had been rumored for weeks and was made official at a press conference in Tokyo last week. That deal has cleared the way for the simultaneous unveiling of Renesas Technology Corp., the proposed merger of Mitsubishi's and Hitachi's non-DRAM chip operations.

"It is definitely a step in the right direction [for the Japanese economy]," said Steve Cullen, director of semiconductor research at In-Stat/MDR. (In-Stat/MDR is owned by Reed Business Information, the parent company of Electronic News.) "Economists around the world have been telling Japan for a number of years that now there is a need for structural change. A merger between a Mitsubishi company and a Hitachi company is probably a good indicator that structural change is happening."

Citing data from Gartner Dataquest, the companies said Elpida's 2001 DRAM market share was 8.5 percent, and Mitsubishi's DRAM market share was 2.6 percent. Analysts said neither company could compete effectively in the DRAM business at those levels.

Cullen said the deals make sense for all involved. Elpida closes the gap with companies such as Infineon Technologies AG, which was the primary beneficiary of business lost by troubled Hynix Semiconductor Inc.

"Mitsubishi had gotten to the point where they were going to have a hard time supporting the engineering and manufacturing processes," Cullen said. "There is a fair amount of overlap between the products and markets that Mitsubishi was serving and those that the Hitachi part of Elpida had been serving. So I think that's going to be a pretty good fit."

Hitachi and Mitsubishi have grand plans for Renesas, claiming the company will achieve annual sales of $7.3 billion in its first year. That would place it high in the rankings of the world's top semiconductor companies--perhaps in the No. 2 position.

Meanwhile, the Tokyo-based joint venture between Hitachi and NEC Corp. also will form a new alliance with Powerchip Semiconductor Corp. of Taiwan, which will serve as the foundry for its DRAM production. Mitsubishi holds a minority stake in Powerchip and consigns more than half the production of its DRAM chips to the company. Brian Matas, VP of research firm IC Insights, said the alliance was probably negotiated by Mitsubishi rather than serving any huge practical purpose to Elpida.