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Taiwan Mixing it up with DRAMs, Part II..Acceptance?

Comments(0)Mirrors Worldwide Government's Increasing Role in Business and the Economy; “Cash is King”...and who has the cash?
I have watched, disapprovingly, as the Taiwanese government, with its $6B Memory Makers’ Salvation War-chest, make Taiwanese DRAM makers (and others) grovel at their feet, produce one business plan after another, and beg for the funds to sustain their operations one more week, one more month, or one more quarter. Every day, as DRAM makers burned off precious cash, the government’s position ‘as cash-holder of last resort’, has become stronger. A few months ago when Hynix ‘solved’ its cash sustenance problem for a few quarters with some bank loan actions...new loans and deferral of payment schedules...I felt that they had separated themselves as one of the DRAM survivors; now I am not so sure. Taiwan’s solution may, possibly, be stronger, and leave the DRAM landscape looking like Samsung, Team Elpida, Team Micron and Hynix...in approximately that order. Qimonda is now folded up and it is uncertain where ProMOS lands.

Despite this current potential 'resolution', I have felt for a long while, that among DRAM makers today, someone has to die, so others might live, and any atempt to keep everyone 'whole' and in play will subvert the process of 'Creative Destruction'.

In Taiwan, though the wheel is still in spin, we appear to be gravitating towards a Two DRAM Consortium solution, (1) Elpida-Rexchip-Powerchip on the one hand, and (2) Micron-Nanya-Inotera (and Meiya) on the other. (ProMOS has been seen as aligned with either, both, or continuing with partner, Hyinx, so it is unclear where they will come down.)

The non-Taiwanese principals here, Elpida and Micron, the resident technology developers and technology sources, will probably be incented and coerced (“Make them an offer they can’t refuse!”) to a serious set-up of technology development in Taiwan, and transfer it to their Taiwanese partners in order to get a cut of Taiwan’s DRAM Industry Salvation Fund.

If this happens, then maybe Hynix does not come out looking so well. This exemplifies how fast things are changing. Qimonda also looked good (or good enough) for two months, as they secured funding not long ago; today, they are history. So, even if something like this proposed ‘solution’ does appear to be getting the nod today, things are changing so fast, there is no assurance that this is the last chapter in this tale.

For sure, on the heels of the economic collapse of last fall, we are in for a period of vastly increased government involvement in industry and in business, on a worldwide basis. Nationalizing the banking system is all the talk in both the US and various European capitals. Where “free marketers” disapproved of government involvement in Korea in the late 1990s, and in China and Taiwan, they now find it as perhaps the only survival mode available, and have quietly dropped their objections as they learn to cross those same boundaries as the rest of the world, like the oil cartels, and farm subsidy policies in Europe and America.

For sure, ‘letting the market work its magic’ is a phrase that will be retired from the policy discussions, at least for a while, as huge deficits, bail-outs, injections of billions of dollars of capital into the economy seeks to right a badly damaged ship. When “Cash is King” and lack of credit sources is starving ‘good’ companies as well as ‘bad’, one wonders how long those entities that are flush with cash today...Governments (by borrowing or printing), Sovereign Wealth Funds (SWFs), balance of trade creditors, Arab Emirates’ Abu Dhabi, China and others with huge balance of payments surpluses...how long can they stay aloof of the opportunities to buy up whole companies that have established market positions, to play the kingmaker and savior, and see their fondest dreams of ‘instant industrialization’ close at hand and immediately reachable?

Indeed, through government incentives and outright grants, tax holidays, worker-training subsidies have always been a part of the ‘pure, free-market’ semiconductor industry, this amount of government ‘meddling’ has always been tolerated. The Scottish and Irish Development Authorities, with their attractive packages to bring HiTech into Silicon Forest in the 1980s are cases in point. Intel’s 1995 fab in Rio Rancho NM got a huge package of financial assistance from the New Mexico State government. IBM ‘partnered’ with the State of New York to expand East Fishkill and add a $1.2B Technology Development Center in Albany within the past several years; frowned upon, ‘unfair’, and merely tolerated yesterday, but today, accepted as a legitimate, and maybe necessary way to play the game.

Keeping people employed is certainly a government objective and legitimate government interest, to ensure tax revenues keep flowing. But during the long, dry aftermath of the last bubble bursting, 2001-2003, keeping Hynix alive with government-assisted bank loans only kept DRAM prices under water, and DRAM industry profits low for far longer than they otherwise would have been; these losses were measured in the billions of dollars for the DRAM industry, and were accompanied by similar losses of billions of dollars of stock equity for shareholders in Micron, Infineon and Qimonda, and Elpida.

There cannot be two sets of rules to play by in one game, though there always is.

Since last fall, no one can doubt that the government role is increasing and will continue to do so, so long as jobs (and their associated tax revenue stream) are threatened. International competitiveness is an important side-benefit, perhaps but not necessarily and not always in the case of Taiwan, that has mostly been hiding in the shadows on these bailouts and 'assistance plans'. Only time will tell who is better or worse off after Taiwan 'invests' its $6B and we let it run for a few years.

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