Elpida Memory, Inc

views updated

Elpida Memory, Inc.

2-1 Yaesu 2-chome
Chuo-ku
Tokyo,
Japan
Telephone: ( + 81 3) 32811500
Fax: ( + 81 3) 32811571
Web site: http://www.elpida.com

Public Company
Incorporated: 1999
Employees: 2,518
Sales: ¥241.55 billion ($2.05 billion) (2006)
Stock Exchanges: Tokyo
Ticker Symbol: 6665
NAIC: 334413 Semiconductor and Related Device Manufacturing

Elpida Memory, Inc., is one of the world's top producers of DRAM (dynamic random-access memory) chips, and is the only remaining major DRAM manufacturer based in Japan. Elpida develops DRAMs for the three major market segments: Servers, Personal Computers, and the increasingly important Digital Consumer Electronics & Mobile Devices market. The company's production includes DDR (double data rate) and Rambus-based DRAMs. In 2006, Elpida launched manufacture of the latest-generation DDR-3 DRAMs. The company supports its DRAM business through its E300 wafer facility opened in Hiroshima in 2005. In early 2006, the company opened a dedicated design facility, the Kansai Design Center in Osaka, in order to boost its position in the global DRAM industry. Also in that year, the company launched plans to add a design center in India. The company also operates its own E200 foundry business for the production of SRAMs and other chips, with production facilities extending to Shanghai, China. Elsewhere, Elpida operates sales and distribution subsidiaries in Germany, Hong Kong, Taiwan, Singapore, and the United States. Formed in 1999 through the merger of the DRAM operations of NEC and Hitachi, Elpida has been listed on the Tokyo Stock Exchange since 2004. Elpida is led by CEO and President Yukio Sakamoto. In 2006, the company posted sales of ¥241.55 billion ($2.06 billion).

A NEW MODEL FOR JAPAN'S
SEMICONDUCTOR INDUSTRY IN
1999

By the late 1990s, Japan had lost its former dominance of the global semiconductor market. The country's highly fragmented semiconductor industry had not been able to compete with the drive for dominance of its foreign competitors, including Korea's Samsung, as well as manufacturers in Taiwan and the United States. By the end of the 1990s, Samsung alone had captured a 21 percent share of the global market, while fellow Korean Hyundai had claimed more than 19 percent, and the United States' Micron taking 14 percent; its closest Japanese competitors represented only a fraction of the DRAM market. Top Japanese DRAM producers such as NEC and Hitachi, had become increasingly marginal players in the industry, with shares of less than 9 percent and 5 percent, respectively.

Part of the Japanese DRAM industry's difficulties lay in the traditional Japanese corporate model, in which DRAM production remained a minor part of huge, diversified conglomerates. Because of this, the industry had proven unable to adapt to the radical shifts in the global DRAM market in the 1990s. That decade was marked by increasingly rapid technological developments, as DRAMs quickly passed from 8 Mbit to 16, 32, and then 64 Mbit capacity in a short period of time. As a result, DRAM prices went into a free-fall; the Japanese producers, caught off-guard and, burdened by the typically dense Japanese bureaucratic-based hierarchies, found themselves unable to react in time. By 1998, the country's DRAM industry had lost billions; at the same time, the lack of scale by the major Japanese players placed them at a continued disadvantage as the industry turned toward the new century.

Yet the future remained full of opportunity, especially because of the rapid expansion of the DRAM market itself. Whereas DRAM production had largely been oriented toward the personal computer and server markets, the new generations of increasingly rapid, less expensive and ever smaller chips placed them as central components for a growing array of appliances. The drive for more sophisticated DRAM technology was spurred on, in particular, by the rapid uptake of cellular telephones and other mobile communication and entertainment devices among global consumers.

At the end of 1999, Hitachi and NEC took the leap and announced their intention to spin off their DRAM production units into a new joint venture, initially called NEC Hitachi Memory Inc. The move marked a milestone of sorts for the Japanese high-technology industry, which was struggling to recapture its lost momentum. By combining DRAM operations, NEC Hitachi leaped into the top ranks of the global DRAM producers, with a total share of some 14 percent.

A major factor in the new company's future prospects was its strong design team. This enabled the company to begin development of next-generation 11-micron technology as early as April 2000. By the end of that year, meanwhile, the company had succeeded in gaining the cutting edge of the DRAM market, launching a 13-micron, 256 Mbit chip. The company had also begun taking steps to claim its own identity, changing its name to Elpida Memory that year. The word "Elpida" was derived from the Greek word for "expectation," to which the company added the "d" (for dynamic) and "a" (for association). Elpida's drive for identity was aided by NEC's and Hitachi's announcement in December 2000 of their decision to push ahead with the full integration of their DRAM operations into Elpida. As part of that process, the company also announced plans to build a new $1.6 billion wafer fabrication factory in Hiroshima, near NEC's own operations.

By 2001, however, Elpida was struggling to meet its growth target. Indeed, the company's share of the overall market had slipped, back to 13.6 percent, while rivals Samsung and Micron continued to boost their own market share. At the same time, the rapid consolidation of the DRAM market, which had seen the numbers of producers drop from nearly 25 to just 15 in the space of only four years, placed still more pressure on the remaining players to gain scale in order to remain competitive.

Yet Elpida's position remained hampered by the limits of its manufacturing capacity; at the time, Samsung's production capacity was double that of Elpida. The company recognized that in order to compete, it would have to invest heavily in additional capacity, with an eye on a future public offering. For the time being, however, Elpida continued as a joint venture controlled by NEC and Hitachi.

Construction began on the Hiroshima plant in 2001; in that year, Elpida, which continued to enjoy the benefits of a strong sales relationship with its parent companies, also expanded its sales presence both domestically and internationally.

COMPANY PERSPECTIVES

Elpida Memory, Inc. aims to become a top 3 global DRAM company that contributes to the digital information society by providing advanced, highly functional, high-performance DRAM products while maintaining cost competitive operations.

INDEPENDENCE IN THE NEW
CENTURY

Despite its efforts, Elpida's ownership structure hampered the company's growth. With a lack of strong leadership, and no clear, unified management strategy, the company struggled to maintain its competitiveness. In particular, the company was slow to make decisions in an industry that demanded a high level of reactivity to market conditions. By 2002, Elpida and its owners recognized that the company was forced to adopt a new management structure. In that year, the company hired noted corporate turnaround specialist Yukio Sakamoto to take control of Elpida's direction. Sakamoto's career to that point included stints with UMC Japan (the former Nippon Foundry Inc.), Kobe Steel, and Texas Instruments Japan.

The addition of Sakamoto was a step toward developing Elpida's independence into the mid-2000s. As one NEC Corp. board member stated in a company press release: "Elpida's new management was deliberately selected from outside either of the parent companies as part of a strategic decision to empower the company to focus on its own DRAM business."

One of Sakamoto's first moves was to step up its foundries operations. To do this, Sakamoto announced the company's intention to look beyond Japan, and specifically to the Chinese mainland, with plans to out-source as much as half of its DRAM production. At the same time, the company negotiated with Mitsubishi Corp. to take over its DRAM production, including its foundry agreement with Powerchip Semiconductor Corp. in Taiwan. That agreement, reached at the end of 2002, was completed in 2003 and provided a major boost to Elpida's goal of becoming a top three global DRAM producer.

Another step toward that goal came early in 2003, when Elpida launched test production at its new state-of-the-art 300mm wafer facility in Hiroshima. That plant's operations were then regrouped directly under Elpida, as its Hiroshima Elpida subsidiary. In 2004, Elpida formally acquired Hiroshima Elpida's land and assets, including buildings and production facilities from NEC.

By the end of 2003, Sakamoto had led the company into two new strategic partnerships. The first was a design and process technology agreement with Power-chip to develop next generation 0.11 micron and 0.9 micron DRAMs. The second came at the end of the year, with an agreement with Shanghai-based Semiconductor Manufacturing International Corporation that turned over a share of Elpida's DRAM production to the Chinese company. In this way, Elpida hoped to as much as triple its global DRAM market share.

With this in mind, the company orchestrated the full-scale launch of production at Hiroshima Elpida. The company shortly thereafter targeted a massive expansion of that facility, raising nearly $1 billion in order to expand the plant's capacity from 3,000 wafers per month to more than 15,000 by the end of March 2004.

By June of that year, however, Elpida had begun to refocus its goals, and in that month launched construction of a second 300mm DRAM wafer plant with a capacity of as much as 60,000 wafers per month. The new facility was expected to cost the company as much as $4.5 billion by the time of its completion. In order to fuel that investment, Elpida went public in November 2004, listing its stock on the Tokyo Stock Exchange. The listing represented a new step in Elpida's independence from its joint-venture founders.

Elpida's investment drive also included investments in developing new technologies, such as a 512 Mbit DDR-3 chip, which doubled the speed over previous generation chips, introduced at the end of 2005. By 2006, the company added 1- and 2-Gbit versions of the DDR-3 chip as well. Early in 2006, Elpida underscored the importance of product development in its goals to acquire a position among the market leaders, when it created the Kansai Design Center in Osaka. That facility opened in January 2006. At the same time, Elpida also launched its plans to open a second design center in India, which was emerging as a new Asia-region technology center.

KEY DATES

1999:: NEC and Hitachi agree to merge their DRAM production operations into a new subsidiary, NEC Hitachi Memory Inc.
2000:: NEC Hitachi Memory changes name to Elpida Memory Inc.
2001:: Company begins construction of new 300mm DRAM wafer fabrication factory in Hiroshima.
2002:: Yukio Sakamoto is appointed CEO and president in order to lead new management team.
2003:: Elpida integrates DRAM production operations from Mitsubishi; forms partnership with Powerchip, in Taiwan; signs production agreement with Semiconductor Manufacturing International in China.
2004:: Elpida goes public, listing on Tokyo Stock Exchange; production at Hiroshima DRAM plant increases fivefold; launches construction of second DRAM plant in order to boost production.
2005:: Company launches production of next-generation DDR-3 DRAM chip.
2006:: Company founds Kansai Design Center in Osaka.

Not all of the news coming from Elpida was good news, however. In February 2006, the company pleaded guilty and agreed to pay a fine of $74 million in conjunction with price-fixing charges brought against Elpida and the other major players in the global DRAM industry. By then, nonetheless, Elpida had claimed a spot among the global top five, and appeared well on its way to achieving its goal of becoming a top three DRAM producer by the end of the decade.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

Akita Elpida Memory, Inc.; Elpida Memory (Europe) GmbH. (Germany); Elpida Memory (Hong Kong) Co., Ltd.; Elpida Memory (Singapore) Pte. Ltd.; Elpida Memory (Taiwan) Co., Ltd.; Elpida Memory (USA) Inc.; Elpida Memory, Inc.; Hiroshima Elpida Memory, Inc.

PRINCIPAL COMPETITORS

Samsung Electronics Company Ltd.; Micron Technology Inc.; Hynix Semiconductor Company Ltd.; Infineon Technologies A.G.; Powerchip Semiconductor Corp.; ProMOS Technologies Inc.; Nanya Technology Corp.