Chip makers compete to buy Japan’s Elpida

For a bankrupt company, Elpida Memory is getting a lot of attention as the subject of a billion-dollar chess game among the world’s biggest technology companies.

They don’t necessarily covet Elpida’s debt, workforce or even most of its business. They just want the part of its business that makes chips for Apple’s mobile devices - and, moreover, they want to make sure their competitors don’t.

SK Hynix, the world’s second-largest memory-chip maker, said on March 30 it would bid for Tokyo-based Elpida. Private-equity firm TPG Capital also plans a bid, said a person familiar with the matter on April 6. Toshiba may make a joint bid with Hynix, and Micron Technology may also try to buy the company’s assets, Japanese media including the Nikkei newspaper have reported.

Whoever gets the prize will be in a better position to compete with Samsung Electronics, the world’s largest memory-chip maker, and make life even tougher for all smaller rivals.

“Elpida’s technology is what everyone wants, as its technology can compete with Samsung’s,” Mitsuo Shimizu, a Tokyo-based analyst at Cosmo Securities, said by phone.

Elpida was Japan’s largest maker of dynamic random access memory chips. Then the price for DRAM chips used in personal computers plummeted as they became a commodity and as PCs ceded ground to mobile communication devices. Amid a stronger yen hurting exports, Elpida filed for bankruptcy protection on Feb. 27 after losing money for five quarters.

Samsung successfully made the transition to mobile DRAM and controlled 54 percent of the global market for such chips, according to TrendForce, a Taipei-based research company. Hynix followed with 21 percent and Elpida with 17 percent for mobile DRAM as of the fourth quarter of last year.

Shipments of DRAM chips used in mobile devices such as Apple’s iPhone are set to surge sevenfold by 2015 from 2011, according to IHS’s iSuppli, an Englewood, Colorado-based research company.

The mobile DRAM business is “the only thing worth buying” among Elpida’s assets, Amir Anvarzadeh, a Singapore-based manager for Asian equity sales at BGC Partners, said in a phone interview.

Elpida makes all of its mobile DRAM chips at its plant in Hiroshima, 40 percent of them for Apple, Anvarzadeh said. Apple overtook Hewlett-Packard as the world’s largest chip buyer last year, according to Stamford, Connecticut-based Gartner.

“Their mobile DRAM technology is perceived as good globally,” said Park Hyun, a Seoul-based analyst at Tong Yang Securities. Elpida began supplying Apple with the chips ahead of Hynix, Park said.

Unlike DRAM chips for PCs, mobile DRAM chips are customized to specifications required by device makers.

Taking over Elpida would enable Boise, Idaho-based Micron to boost its mobile DRAM business. Micron had 7.3 percent in mobile DRAM as of the fourth quarter, according to TrendForce. For Tokyo-based Toshiba, which only produces NAND flash, a different type of memory chip, buying Elpida’s DRAM assets would allow it to package both memory chips on its own, according to TrendForce.

Samsung and Hynix each produce both NAND and DRAM chips.

Hynix declined to comment beyond the March 30 regulatory filing in which it expressed interest in Elpida, said Park Seong Ae, a Seoul-based spokeswoman for the company. Keisuke Ohmori, a spokesman for Toshiba, declined to comment, as did Tim Payne, an external spokesman for TPG in Hong Kong.

Micron President Mark Adams also declined to comment on a possible investment in Elpida in a March 22 interview.

Last but not least, an Elpida spokesman declined to comment, citing company policy.

Samsung, the largest seller of chips for Apple, and the Cupertino, California-based iPhone maker have been suing each other globally since last year over patents related to mobile technology and design.

The competition may give other chipmakers a chance to increase supplies to Apple, as the U.S. company may not want to be too dependent on Samsung, BGC’s Anvarzadeh said.

Apple already accounts for about 7.8 percent of Hynix’s revenue from selling NAND flash and DRAM chips, according to data compiled by Bloomberg.

Toshiba has proposed making a joint bid with Hynix for Elpida’s assets, the Nikkei reported April 5. If the two companies teamed up in a successful bid, Toshiba would probably take Elpida’s mobile DRAM capacity, while Hynix’s interest may be in converting Elpida’s PC DRAM production into NAND output, Dongbu’s Shin said. Bloomberg