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Hynix Submits Initial Proposal to Bid for Elpida

Toshiba Considering Investing in Bankrupt Elpida, Executive Says
The Toshiba Corp. logo is displayed at an electronics store in Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Hynix Semiconductor Inc., the world’s second-largest maker of computer memory chips, submitted an initial proposal to bid for Elpida Memory Inc., the Japanese chipmaker that filed for bankruptcy last month.

The South Korean company will decide whether to make a final bid after due diligence, it said in a regulatory filing today. Toshiba Corp. also was considering a bid, a senior executive for the Tokyo-based company said today, asking not to be identified because the discussions are private.

Bidders for Elpida’s assets may gain as much as 12 percent of the global market for dynamic random access memory, or DRAM, chips as the Tokyo-based company tries to revive itself after filing for bankruptcy with liabilities of 448 billion yen ($5.5 billion) on Feb. 27. Hynix is trying to narrow the gap with industry leader Samsung Electronics Co. and fend off Micron Technology Inc. as chip prices are damped by slowing PC sales.

“Participating in the initial stage of bidding was a must for Hynix because their competitors are known to be bidding,” said Song Myung Sup, a Seoul-based analyst at HI Investment & Securities Co. “They need to be part of the process to assess Elpida’s situation more clearly. Also, you need to go in there to have a better idea what competitors are looking for.”

Hynix shares dropped 4.1 percent, the most in three months, to close at 29,250 won in Seoul trading, while South Korea’s benchmark Kospi index was little changed. Toshiba declined 1.9 percent to 364 yen in Tokyo, while Japan’s Nikkei 225 Stock Average lost 0.3 percent.

“The market is disappointed, as the DRAM business requires a lot of money,” said Mitsushige Akino, who oversees about $600 million at Ichiyoshi Investment Management Co. in Tokyo.

Falling Prices

Falling chip prices and a stronger yen eroded Elpida’s earnings, exacerbating the Tokyo-based company’s troubles after it received financial support from the government and lenders in 2009. The chipmaker, whose customers include Apple Inc., was delisted from the Tokyo Stock Exchange on March 28.

DRAM prices plunged to a record low last year after PC shipments missed analyst forecasts. 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.

Elpida gained approval on March 23 for President Yukio Sakamoto to lead its revival plan after filing for Japan’s biggest bankruptcy in two years. The company plans to submit a restructuring plan by Aug. 21.

Toshiba Investment

Toshiba may invest in Elpida alone or as part of a group, and isn’t interested in all of the company’s assets, the Toshiba executive said today. Elpida plans to choose a sponsor in May for its revival plan, the executive said.

“If Toshiba comes in and takes Elpida, they can be a serious competitor to Samsung and Hynix,” said Brian Park, an analyst at Tong Yang Securities Inc. in Seoul. An investment would give Toshiba DRAM capacity in addition to its current production of NAND flash memory, he said.

Kaori Hiraki, a spokeswoman for Toshiba, declined to comment, and a spokesman for Elpida declined to comment or be named.

Boise, Idaho-based Micron has been in talks with Elpida since the end of last year and is considered a candidate to sponsor the Japanese chipmaker, the Nikkei newspaper reported earlier, without saying where it got the information.

‘Worst Case’

Dan Francisco, a spokesman for Micron, declined to comment. Micron President Mark Adams also declined to comment on a possible investment in Elpida in a March 22 interview. The U.S. chipmaker will continue to look at developments in the industry to see if there are investment opportunities “that make sense for shareholders,” he said at the time.

“The worst case for Hynix is Micron taking Elpida,” Song at HI Investment said. “If Micron is bidding, there has to be some competition to boost bidding prices.”

Elpida was formed through the 1999 merger of NEC Corp.’s and Hitachi Ltd.’s memory businesses. Toshiba Corp. announced its withdrawal from the DRAM business in 2001 to focus more on making NAND flash memory chips.

Suwon, South Korea-based Samsung controlled 45 percent of the DRAM market by value in the third quarter, according to Englewood, Colorado-based IHS Inc. Hynix held a 22 percent share, followed by Elpida’s 12 percent, the researcher said.

SK Telecom Co., South Korea’s largest mobile-phone carrier, completed a payment of 3.37 trillion won ($3 billion) in February to buy 21 percent of Hynix, following an agreement in November. The deal ended a two-year effort by Hynix shareholders to dispose of stakes they gained through a 2001 government-led bailout.

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