Nanya ends joint DRAM technology research program with Micron

Taipei, Jan. 18 (CNA) Nanya Technology Corp. has decided to end its joint DRAM technology development program with United States-based Micron Technology Inc.

Nanya, a member of the Formosa Plastics Group, announced Friday that it agreed with Micron on Thursday to amend their joint DRAM technology development arrangements and their joint venture relationship involving Inotera Memories Inc., a Taiwan-based DRAM maker.

The new agreements are effective immediately, according to a Nanya statement.

Nanya was the last Taiwanese manufacturer still dedicated to the development of PC DRAM technology, and its decision to pull out of the market likely signaled the complete surrender of Taiwanese vendors in the segment.

Vanguard International Semiconductor Corp. was the first to bow out PC DRAM production, shifting to the contract wafer foundry business. Other companies, such as Winbond, Powerchip, Mosel Vitelic and ProMos, have followed suit over the past few years.

Nanya said in the statement that its new business strategy is to focus more on consumer and low power value-added DRAMs, meaning that it would no longer participate in the DRAM technology development project with Micron.

The partnership was initiated when the two companies set up Inotera as a joint venture in 2008.

Though Nanya is withdrawing from the research program, it will retain the right to acquire technological know-how from Micron through a technology license.

The two companies also agreed that Micron would soon purchase all of Inotera's manufacturing output, with Micron taking up to 95 percent of Inotera's production beginning in early 2013.

Under the prior agreements, Nanya and Micron were each obligated to purchase about half of Inotera's output.

Nanya said it will reduce its purchases of Inotera's DRAMs to 5 percent of overall production during the rest of the year and will end all such purchases in 2014.

Despite the changes, Nanya and Micron will continue to hold a majority of Inotera's shares, the statement said, adding that the company and its affiliates will likely acquire greater equity ownership over the next year.

Under the new supply arrangement between Micron and Inotera, Micron will also buy Inotera DRAMs at market-based prices instead of based on a margin-sharing arrangement as was the case previously, according to a Micron statement.

Local market analysts said the new supply terms will be more favorable for Inotera.

The new arrangements will eventually turn the Formosa Plastics Group into a DRAM investor and put an end to Taiwan's pursuit of building a local DRAM brand for personal computers.

Riding a PC industry boom, Taiwan has pumped more than NT$1 trillion (US$34.36 billion) into the DRAM sector over the past 15 years, according to a United Evening News (UEN) estimate.

Without state-of-the-art proprietary technology of their own, however, local PC DRAM makers have tended to depend on licensed technology and high royalty fees, undermining their competitiveness in the fiercely competitive market.

They have also struggled financially for years, derailed by falling prices and the high capital expenditures needed to stay competitive.

Some of them, such as Vanguard and Winbond, have managed to reinvent themselves, while several others, such as ProMos Technologies, remain mired in financial difficulties.

Their exit has created a critical gap in the local PC supply chain, industry sources said.

In the future, the global DRAM market will be monopolized by three leading players -- Micron in the United States and Samsung Electronics and SK Hynix Inc. in South Korea.

Market research firm TrendForce said the changing supply picture will prevent the sharp price declines of the past caused by supply gluts and lead to more stable development.

But analysts cited in the UEN report raised concerns that the pullout of Taiwanese DRAM makers could leave local PC makers in an even more unfavorable position when competing with their Korean rivals.

Samsung and Hynix jointly control a 70 percent share of the global PC DRAM market.

The UEN report also said that Micron may move production of 20 memory chip items to Inotera after reaching the new agreements with Nanya while allowing its factory in Singapore to focus on churning out Flash chips.

Should that be the case, the report said, Inotera could stage a turnaround and become profitable sooner rather than later.