Business Tech

Qimonda, an affiliate of Germany-based Infineon Technologies, is seeking protection under Chapter 11 for its U.S. unit, the company said Monday. Separately, a research report was released today forecasting dim prospects for chipmakers in 2009.

The U.S. unit of Qimonda AG, one of the world's largest memory chip manufacturers, said in a statement that it is seeking bankruptcy protection. "The US subsidiaries Qimonda North America Corp. and Qimonda Richmond L.L.C. filed for creditor protection under Chapter 11 on February 20, 2009," the company said in a statement Monday. "No disruptions to operations, particularly to customer deliveries, are expected to result from this," the statement said.

In January, Qimonda AG filed for insolvency protection in Germany after it was not able to secure government financing.

The company listed the following vital statistics on its Web site:

• Pioneer in 300mm manufacturing: Almost 90 percent of the DRAM bits shipped are 300mm
  
• About 13,500 employees worldwide (status: December 31, 2007)
  
• 3.61 billion EUR net sales in Financial Year 2007
  

In related news, a report released by market research firm In-Stat forecasts continued contraction of worldwide chip sales.

"The global recession will wreak havoc on semiconductor sales this year," the report said. Worldwide semiconductor revenue will decline by nearly 20 percent in 2009 to $199.2 billion, the firm said. The industry will not recover to 2007 levels until at least 2012. This echoes recent comments from Morris Chang, chairman of Taiwan Semiconductor Manufacturing Co..

"Declining confidence resulting from recent shocks and increased uncertainty about the future will lead to more conservative spending even after liquidity improves and the economic recovery is well underway," wrote Jim McGregor, an In-Stat analyst. Revenue growth in 2010 will be modest, at 11.8 percent, the report added.

iSuppli releases its preliminary 2008 top-20 chip rankings as semiconductor suppliers fall upon hard times.

Intel, Samsung, Texas Instruments, Toshiba, and STMicroelectronics occupy the top five positions, while Advanced Micro Devices was No. 11 and Nvidia No. 20 in the ranking.

Memory chip manufacturers are some of the hardest hit. South Korea-based Hynix, which dropped from No. 6 to No. 9, and Micron Technology (No. 16) are both restructuring. Micron is reducing staff and shutting down facilities, while Hynix seeks outside investors.

Micron is expected to post a 9.2 percent revenue decrease in 2008 and Hynix's revenue should dive by about 29 percent in 2008, iSuppli said.

The world's largest memory chip supplier and the world's No. 2 chipmaker, Samsung Electronics, is set for a 9.1 percent revenue decline for the year, the market researcher said.

Toshiba, a major flash memory chip manufacturer, is expected to post a 5.9 percent decline in chip revenue in 2008.

iSuppli said 2008 will go down as "a year to forget" for memory chip suppliers.

Preliminary 2008 worldwide ranking of the top 20 chip suppliers

(Credit: iSuppli)

Munich, Germany-based Infineon (No. 10) said Wednesday it expects 2009 revenue to fall at least 15 percent from the previous year. Infineon makes chips for automotive and communications devices, but is also a large player in the memory chip market through its subsidiary Qimonda.

Global semiconductor revenue is expected to decline by 2 percent in 2008 due to a 16.9 percent plunge in sales of memory integrated circuits (ICs), iSuppli said. "Only two out of the Top-29 memory IC suppliers, i.e. companies that are expected to earn roughly $100 million or more in 2008, will see their memory IC revenue grow in 2008. For the memory IC business, 2008 can only be described as disastrous," Dale Ford, senior vice president of market intelligence services for iSuppli, said in a statement.

The downturn in semiconductor revenue in 2008 is not limited to memory suppliers. Six of the top-10 chip suppliers are expected to see revenue falls in 2008, including some companies that are not focused on memory, including Texas Instruments, Renesas Technology, and Sony, according to iSuppli.

"In the face of increasingly negative economic news, orders for semiconductors have virtually stopped," the market researcher said.

"About the only good thing that can be said about the 16.9 percent decline in memory revenue in 2008 is that it pales in comparison to the 48.2 percent plunge in 2001," Ford said.

And a few companies have been performing relatively well. Based on an expected revenue growth of 19.6 percent, Qualcomm is expected to jump five places to No. 8 in the rankings in 2008, up from No. 13 in 2007, iSuppli said.

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."