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Public funds no answer for embattled Japanese chipmakers [Kyodo News International, Tokyo]
[May 01, 2009]

Public funds no answer for embattled Japanese chipmakers [Kyodo News International, Tokyo]


(Kyodo News International (Tokyo, Japan) Via Acquire Media NewsEdge) May 1--TOKYO -- Crippled by an unprecedented economic crisis, ailing Japanese semiconductor and electronics makers are desperate for a helping hand from the government to stem their losses.



And that much-needed aid is now on its way as the government rolls out a new capital-boosting scheme that will allow struggling companies outside the financial sector to receive de-facto public funds to prop up their deteriorating financial base.

Loss-making Elpida Memory Inc. and Pioneer Corp. are already preparing to apply for the program in May while Hitachi Ltd. and Toshiba Corp. are believed to be studying the option. Other electronics makers like Fujitsu Ltd. and Mitsubishi Electric Corp. have also been ravaged by losses in their chipmaking affiliates.


Government officials have hinted at their willingness to essentially bail out Elpida, the world's third-largest and the country's sole maker of dynamic random access memory chips mainly used for personal computers, in the name of saving Japan Inc.

"Chipmakers in each country are all facing extremely tough business conditions on the back of a severe global slump in the semiconductor industry," Vice Minister of Economy, Trade and Industry Harufumi Mochizuki recently said.

"I believe that for Elpida to stand firm would hold an extremely important meaning in terms of our industrial polices," he said.

Elpida, which anticipates a group net loss of 180 billion yen for just-ended fiscal 2008, has already inked a technology partnership with Taiwan Memory Co., a new company set up by the Taiwanese government to support its embattled chipmakers.

But calls for government aid have been strong amid fears Elpida would face the same fate as other global industry giants like Spansion Inc. of the United States and Qimonda AG of Germany, which were swept under by a severe slump caused by an erosion of chip prices, chronic supply glut and plummeting demand.

"We can't let the chipmaking industry disappear from Japan. We hope the government will also help us out," a senior official at a major semiconductor firm said.

Under the new program recently outlined by the industry ministry, companies like Elpida will be able to receive capital investments from the state-backed Development Bank of Japan on condition that the government would cover 50 to 80 percent of possible losses on their failure.

The scheme is essentially designed for companies believed to be suffering temporary profit declines due to the global financial turmoil and is eligible only for those that can map out a plan to improve their earnings in three years time.

The use of public funds is also seen by major Japanese electronics giants -- nostalgic for the dominant position they enjoyed in the 1980s -- as a way to facilitate realignment in an industry that analysts view as overcrowded.

A move toward consolidation is not new.

Elpida was established in 1999, originally as a joint venture between Hitachi and NEC Corp., which later absorbed Mitsubishi Electric's DRAM division. Renesas Technology Corp. was also founded in 2003 through a joint venture between Hitachi and Mitsubishi Electric.

A new shakeup is under way as Renesas and NEC Electronics Corp. plan a merger by next spring to create the world's No. 3 chipmaker, trailing Intel Corp. of the United States and Samsung Electronics Co. of South Korea.

The two firms make microcontrollers and system large-scale integrated circuit chips that are often used in digital home appliances, mobile phones and automobiles.

"System LSIs are pivotal to the (Japanese) industry," NEC President Kaoru Yano said at a recent press conference announcing the integration plan.

"We must have a strong company in Japan for system LSIs for the future of the nation's industry and for Japan's future," Yano said.

But experts cautioned that the troubles plaguing the industry stem from deeper structural flaws and an overall decline in global competitiveness of the nation's manufacturing industry.

"One reason behind weak semiconductor makers is the decrease in strong manufacturers of assembled products," Yoshiharu Izumi, an analyst at JPMorgan Securities Japan Co., said.

For the "revival" of chipmakers, Izumi said Japanese electronics makers like Sony Corp. and Panasonic Corp. will also need to work harder to produce global mega-hit products like Apple Inc.'s iPhone.

"A further consolidation of semiconductor makers alone would not lead to recovery," he added.

Ryutaro Kono, chief economist at BNP Paribas Securities (Japan) Ltd., also said saving companies hit by slumping exports would result in Japan's structural problems including excess capacity and excess employment being neglected.

"By saving companies that should be weeded out from the market, economic resources like labor, material and capital will not be efficiently utilized and will remain at firms with low profitability," Kono said.

Kono said it would be misleading to eye public funds as an emergency measure to combat a temporary external shock like the global financial crisis and warned that a fall in exports is likely to be permanent.

"There is a high possibility that government involvement in industrial revitalization will have devastating results," he said, adding corporate revival should be left to market mechanisms.

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