SK Hynix Drops Bid for Chipmaker Elpida; Shares Climb

(Corrects first paragraph to show that SK Hynix is the second-largest memory chipmaker.)

SK Hynix Inc. (000660), the world’s second- biggest memory chipmaker, dropped its bid for Elpida Memory Inc., worsening the Japanese company’s chances of finding another suitor as it tries to restructure after filing for bankruptcy.

SK Hynix, the only company that had publicly expressed interest in buying Tokyo-based Elpida, decided not to participate in the second round of bidding, the Icheon, South Korea-based company said in a regulatory filing in Seoul today after a board meeting. It didn’t elaborate.

The move makes it harder to revive Elpida as devices such as Apple Inc. (AAPL)’s iPad hurt demand for dynamic random-access memory, or DRAM, chips. After semiconductor prices plunged, Japan’s largest maker of DRAM chips filed for bankruptcy in February with liabilities of 448 billion yen ($5.6 billion) after losing money for five quarters.

“There’s nothing Hynix can gain from buying Elpida,” Kim Young Chan, an analyst at Shinhan Investment Corp. in Seoul, said by phone. “The sale process will very likely drag on for a long time. The way things stand now, Elpida may even go out of business in a year.”

Hynix shares jumped 3.3 percent to 28,150 won at the close of trading in Seoul, the biggest gain since April 13, while the benchmark Kospi index fell 0.3 percent.

TPG Bid

Elpida’s buyer would gain its 12 percent share of the global market for DRAM chips, the most widely used in personal computers, to help compete against industry leader Samsung Electronics Co. (005930) Elpida also supplies Apple with chips used in the iPhone.

Private-equity firm TPG Capital also planned a bid, a person familiar with the matter said April 6. Jochen Legewie, a spokesman for TPG in Tokyo, declined to comment in an e-mail. Calls to Elpida’s office weren’t answered during a national holiday in Japan.

DRAM chip prices plummeted as they became a commodity and as PCs gave way to mobile communication devices. Elpida was also hurt by a stronger yen, which erodes the value of exports.

The price of the benchmark DDR3 2-gigabit DRAM declined to a record 71 cents in November, compared with $4.85 on Sept. 1, 2010, amid slowing personal-computer sales, according to DRAMeXchange, Asia’s biggest spot market for the chips. The price reached $1.05 yesterday.

Revival Plan

Yukio Sakamoto, Elpida’s president, is heading the company’s restructuring efforts after getting court approval to serve as its trustee March 23. The company plans to submit its revival plan Aug. 21.

The chipmaker was created through the 1999 merger of the memory businesses of NEC Corp. and Hitachi Ltd.

Toshiba Corp. (6502) announced its withdrawal from the DRAM business in 2001 to focus on making NAND flash memory chips.

Elpida’s exit from the industry would help chipmakers that have survived the current industry downturn by reducing market capacity, analysts said.

Hynix, bought by mobile-phone operator SK Telecom Co., reported its third consecutive quarterly loss in April. The Icheon, South Korea-based chipmaker plans to spend 4.2 trillion won ($3.7 billion) in capital expenditure this year.

While Elpida’s creditors may ask for at least $3 billion to $4 billion, bidders won’t probably offer more than $2 billion, Bank of America Merrill Lynch said in a March 30 report. Also, a buyer would have to spend $3 billion during the next 12-18 months to help restore Elpida’s competitiveness, making the deal risky, according to the report.

To contact the reporters on this story: Jun Yang in Seoul at jyang180@bloomberg.net; Naoko Fujimura in Tokyo at nfujimura@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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