Updated at 7:15 p.m. PST with additional information from earnings conference call.
Memory chipmaker Micron Technology posted its eighth-straight loss as it was hit by a steep drop-off in chip prices caused by global oversupply.
In the quarter ended December 4, 2008, the Boise, Idaho company posted a net loss of $706 million or 91 cents per diluted share, on net sales of $1.4 billion, down 8.7 percent. Analysts surveyed by Bloomberg had forecast a loss of 45 cents a share.
The 2009 fiscal first quarter results include a $369 million write-down of memory chip products, Micron said.
The largest U.S. manufacturer of memory chips said it saw steep drops in the average selling prices for its DRAM and NAND Flash memory products, which dove 34 percent and 24 percent respectively. DRAM is used as the main memory in PCs. Flash is used for storage in digital cameras, digiital music players, and solid-state drives.
As a result, sales of memory products fell 4 percent from the previous quarter due to "significant decreases in market selling prices for the company's products," Micron said. Sales, however, measured in gigabits, increased 35 percent for DRAM and 40 percent for NAND flash memory.
Micron said anticipated capital expenditures for fiscal 2009 have been revised downward from last quarter's "guidance" of between $1 billion and $1.3 billion to between $650 million and $750 million.
Micron Chief Executive Officer Steve Appleton also addressed the global memory chip production situation in the earnings conference call. "Most of the (memory chip) companies have announced in the neighborhood of 20 percent, 30 percent," he said referring to year-end production capacity cuts. Appleton cited Hynix, the second largest memory chip manufacturer, which is cutting capacity 30 percent.
"The rate at which capacity comes back online will be determined by what the demand profile is through the first half of '09," he said.
He added that chip production equipment vendors may face a dire 2009. "If you talk to the equipment guys, they will tell you that they may not have any business in '09 in certain categories."
Speaking to the possible bailout of the Taiwan memory chip industry, Appleton said that this money is not likely to increase capacity (i.e., increase supply) because most of the money would simply go for things like debt relief, not necessarily to build new capacity.
During the quarter, Micron announced plans to cut its global workforce 15 percent through 2010 and slashed NAND flash production at a joint venture with Intel by approximately 35,000 (200 millimeter) wafers per month.
Micron currently has about $1 billion in cash and short-term investments.
Taiwan will likely rescue, in some form, failing memory chipmakers, as that country's industry falls behind the rest of the world.
Newest DDR3 DRAM memory module
(Credit: Micron Technology)Recent reports depict an industry desperately seeking financial help. The Taiwanese government has responded by offering loans, according to a variety of reports.
(See also: Chip sales dip in October, flash sales dive.)
One report on Thursday said that Taiwan's economic affairs ministry has approved a rescue package. No specifics have been revealed, however.
At stake is Taiwan's dynamic random access memory (DRAM) industry. DRAM is the main memory used in personal computers.
Avi Cohen, managing partner at Avian Securities, which covers memory chip market movements, says "it's something (the government) will have to do if they want to keep all those people employed" at DRAM manufacturers in Taiwan.
And why is this happening? "The Taiwan DRAM industry is falling further and further behind in terms of cost and in terms of production volumes. They have the worst cost basis," Cohen said. "The guys that can produce DRAM on the newest equipment are the most competitive. And therefore can eke out a little profit. Everybody else loses money."
And the companies that lose money? Taiwan-based DRAM makers like Powerchip Semiconductor and ProMOS Technologies--which have been appealing to the government for immediate aid.
The winners (in relative terms since all companies are facing challenges) are companies such as South Korea-based Samsung and U.S.-based Micron Technology. Both Samsung and Micron are comparatively aggressive about moving to next-generation manufacturing process technologies to keep the cost per megabit of memory produced down.
But rescuing the companies will not necessarily be a good thing for the market. "The overproduction that exists in DRAM and all of memory for that matter will likely continue. If you want this market to get some semblance of sanity and reasonableness, you may want to see players go out of business."
Micron Technology announced Sunday that it is buying Qimonda AG's $400 million stake in Inotera Memories.
Inotera was founded as a joint venture by Qimonda (formerly the memory products division of Infineon Technologies) and Nanya Technology. Micron said the deal constitutes an expansion of its relationship with Nanya.
In the current Qimonda-Nanya partnership, Inotera operates two 300-millimeter wafer fabrication facilities producing a total of 120,000 wafers per month, Micron said.
Under the agreement, Micron will acquire access to half of the manufacturing capacity of Inotera, with the other half allocated to Nanya. Micron said it will also share its Stack DRAM technology with Inotera for the production of Stack DRAM products for Micron and Nanya.
The stake in Inotera will improve the Boise, Idaho memory chipmaker's economies of scale. "Micron will gain greater scale in DRAM, reduce our operating expenses per wafer and have access to a very cost competitive operation," Micron Chairman and CEO Steve Appleton said in a statement.
The transaction will be completed in two stages, with Micron purchasing half of Qimonda's stake, or about 18 percent of Inotera, for $200 million in cash within approximately the next week--subject to certain government approvals and other customary conditions. The remaining 18 percent stake in Inotera will be acquired upon receipt of Taiwan Federal Trade Commission approval and other customary conditions, Micron said.
Following the acquisition, Qimonda's share of Inotera's capacity will be ramped down over a period of months, according to Micron.
Micron expects to restructure the previously-announced MeiYa joint venture with Nanya. "It is anticipated that both parties will cease future resource commitments to MeiYa and redirect those resources to Inotera," Micron said.
To help fund the purchase price, Micron has obtained $285 million in term loan financing commitments from strategic sources at favorable terms.
This agreement follows an October 9 announcement in which Micron said it would reduce its global workforce by approximately 15 percent during the next two years as it scales back flash memory chip production in Boise, Idaho.
Memory chipmakers are fighting for their life.
The memory chip market--and industry--is caught in a particularly brutal downward price spiral that is threatening the viability of even the largest players.
"Memory manufacturers who have already been losing money for several quarters are now looking at another six months to a year of absolutely ominous conditions," said Avi Cohen, managing partner at Avian Securities.
Companies are now in survival mode, according to Cohen. "It is a matter of survival and everyone needs to figure out how to stay in business over the next year or how to scavenge something if one (company) decides it cannot survive," said Cohen.
Currently, two major memory chip manufacturers are seeking investment lifelines. Hynix, the world's second largest maker of memory, is trying to scare up cash by seeking buyers for a 36 percent stake in the company. So far, the only likely bidder to emerge is Samsung--which has also made a play for struggling SanDisk, the largest supplier of retail flash memory cards.
The other ailing memory maker is Qimonda AG--an Infineon Technologies subsidiary. Rumors have been rife that the manufacturing assets of the loss-ridden company will be snapped up.
All of this turmoil was underscored this week when Micron Technology, the largest U.S. maker of memory, announced that it had lost $1.6 billion in fiscal 2008.
"The DRAM business--it just doesn't feel like that, for many companies, it's sustainable," said Ron Foster, chief financial officer at Micron, speaking during the company's earnings conference call on Wednesday.
The average selling price for NAND and DRAM has dropped sharply since May.
(Credit: Micron Technology)Pricing has fallen off a cliff in the last few months, making a bad situation worse. Micron said Wednesday that the average selling prices of DRAM chips--the main memory used in PCs--was down between 15 percent and 20 percent from last quarter. NAND flash prices were down between 30 percent and 35 percent. (NAND flash is used as storage in portable music players, digital cameras, and the nascent solid-state drive market.)
The NAND price crash has forced Micron and Intel to delay the "build out" of manufacturing capacity in Singapore, which is part of their joint flash memory venture, IM Flash Technologies, Micron said Wednesday.
"Overall, the NAND market continues to be in an oversupply condition," said Micron's Foster.
This is affecting investment. "The capital expenditure for the NAND market in 2008 is going to be down sequentially (year-to-year), which is the first time that's happened since the inception of the market," said Steven Appleton, chairman and CEO of Micron on Wednesday.
The PC market has also turned bleak. "The PC business was plugging along pretty well and then all of sudden in the last months the demand profile has just really dropped off," according to Foster.
All these negatives add up to a cruel market that is forcing some companies to either merge or perish. "This is leading to a new wave of forced consolidations and partnerships. This industry will look very different a year from now with very few players controlling much larger market shares and with a much better ability to control production and pricing," said Cohen.
This consolidation is not only affecting manufacturers but players in the retail channel too. SanDisk--which does not manufacture flash chips but sources them from a Japan-based joint venture with Toshiba--has seen its stock price plunge more than $60 per share over the last two years. This has made it vulnerable. SanDisk's chairman and CEO, Eli Harari, said last month that the $26-a-share bid from Samsung was "opportunistically timed at the trough of an industry-wide downturn."
Not everything is doom and gloom. The market for solid-state drives--which use NAND flash--is poised to grow. Appleton cited the burgeoning netbook market as an opportunity for SSDs. The enterprise is a target market too: SSDs based on single-level cell (SLC) technology can offer many times the performance of hard disk drives for customers such as credit card companies and airlines.
Ultraportable laptops, such as the ThinkPad X301 and Dell Latitude E4200, are also beginning to use SSDs as a storage replacement for hard disk drives.
The price decline for solid-state drives over the last quarter makes these drives "more attractive from an end user's perspective," Micron said Wednesday, adding that "NAND far exceeds DRAM growth demand rates."
IBM has added NEC to its growing list of allied companies doing research on next-generation chip manufacturing technology.
On Thursday, IBM and NEC Electronics signed an agreement for joint development of next-generation semiconductor manufacturing process technology, which includes participation in an IBM-led effort focused on 32-nanometer chips and, later, 22-nanometer chips. Currently, companies like Intel and Advanced Micro Devices are bringing 45-nanometer chips to market.
Generally, as geometries get smaller, chips get faster and more power-efficient.
IBM has accumulated a large, eclectic group of chipmakers at its semiconductor fabrication facility in East Fishkill, N.Y., and the College of Nanoscale Science and Engineering (CNSE) of the University at Albany, State University of New York.
The area is becoming a hub for chip research that, in essence, is trying to counter the huge multibillion dollar R&D budget of chip giant Intel. Not coincidentally, this isn't far from Advanced Micro Devices' proposed $3 billion chip facility in Malta, NY. AMD also does joint R&D with IBM.
Other members are Singapore-based Chartered Semiconductor Manufacturing, Freescale (formerly part of Motorola), Infineon Technologies, Samsung, STMicroelectronics, and Toshiba.
NEC currently co-develops 45nm and 32nm CMOS process technology with Toshiba and is now extending that scope of collaboration to include the 32nm and finer nodes with IBM and its alliance partners, the Japanese company said.
Specifically, NEC intends to work with the IBM research alliance to develop a common process platform and strengthen development and design ability for system-on-a-chip (SOC) technology--highly integrated silicon typically used in cell phones and consumer electronics devices.
"The new agreement with IBM means that NEC Electronics will develop a common semiconductor process with industry leaders, allowing us to focus on being first to market in areas of eDRAM products and SOC solutions that provide our customers with the added value, such as high reliability and low power consumption," Toshio Nakajima, president and CEO of NEC Electronics, said in a statement.
eDRAM, or embedded DRAM, is high-speed memory usually integrated onto the same piece of silicon as the main processor. This contrasts with traditional DRAM that is external to the processor. eDRAM can be used, for example, in system-on-a-chip designs.
Earlier this year, IBM and its partners unveiled "high-k/metal gate" on silicon manufactured at IBM's 300-millimeter semiconductor fabrication facility in East Fishkill--a technique that Intel also uses.
By implementing high-k/metal gate technology into its leading edge 32-nm technology, the alliance claims performance improvements in circuits of up to 35 percent over 45nm technology at the same operating voltage. The 32nm power reduction over 45nm can be as much as 30 percent to 50 percent depending on the operating voltage, according to IBM.
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