From the FT's Lex blog
So. Farewell then, Elpida Memory, maker of dynamic random access memory chips. You were not dynamic enough and you probably will not even be remembered for very long, although you should be.
This week, Elpida will become one of Japan’s largest manufacturing collapses when it is delisted from the Tokyo Stock Exchange. What happens next is important for corporate Japan and the remaining industry’s survivors.
Investors were caught on the hop by Elpida’s bankruptcy filing last month. Bonds due to mature later this year were trading at about three quarters of face value the day before, implying stress, but not a collapse. The bonds’ final value was set last week at 21 per cent in a credit default swap auction. But the pre-collapse price was not irrational optimism. There is plenty of precedent for betting on a rescue deal: the last decade for Asia’s chip makers has been about stitching together struggling businesses.
That it has not happened here is good. It tells Japanese investors not to expect automatic bailouts and it could - should - curb the D-Ram industry’s tendency for overcapacity. Spot chip prices jumped 15 per cent the day Elpida collapsed. IHS iSuppli expects global revenues from D-Ram to rise by a quarter to $30-billion this year simply because Elpida - joint number three with about 12 per cent market share - must restructure under court supervision.
The best outcome would be a division of Elpida between South Korea’s Hynix and U.S.-based Micron, rivals number two (20 per cent share) and three respectively. Industry leader Samsung has nearly half the market and needs no boost. Two bigger main rivals would make for more competition. Hynix and Micron shares are up a modest 6 per cent and 5 per cent since their rival’s demise. Better pricing power is one thing, but investors should exercise caution until the industry’s overcapacity habit has really been dealt with.