Elpida, Powerchip to invest $13.9B in DRAM venture

Memory chip makers team up to build four new DRAM factories in Taiwan

Japanese memory chip maker Elpida Memory and Taiwan's Powerchip Semiconductor have announced a broad plan to invest $13.9 billion over five years to build four new DRAM factories in Taiwan.

The investment, announced Thursday, will go into a new joint venture company that does not yet have an English name. The new company will open early next year in an advanced 12-inch chip factory Powerchip started building in central Taiwan earlier this year. In coming years, the joint venture company will build three more DRAM (dynamic-RAM) factories on the island, with output reaching 60,000 silicon wafers per month each, for total planned capacity of a massive 240,000 wafers. Thousands of DRAM chips can be made on each wafer.

The investment means the companies are confident in the future of the DRAM industry and in their ability to compete against market leader Samsung Electronics. In fact, Elpida Chief Executive Officer Yukio Sakamoto pledged to surpass Samsung in terms of DRAM market share within three years.

The DRAM industry is ripe for new factories. Most companies in the business have invested in non-DRAM production lines in recent years, mainly NAND flash memory, which is popular in digital cameras and iPods. But DRAM prices have surged recently due to strong PC sales, and the launch of Microsoft Windows Vista is expected to keep DRAM prices strong over the next several months due to strong anticipated PC demand and the greater memory content required by Vista compared to Windows XP.

The two companies intend to marry Elpida's technology prowess with Powerchip's low cost manufacturing know-how, said Frank Huang, chairman of Powerchip. The companies will be even partners in the venture, each putting in their half of the value of investment, and each deriving half of the production from the new company.

Elpida had been looking at four possible investment locations before deciding to partner with Powerchip in Taiwan. The company's CEO traveled to China to visit manufacturing partner Semiconductor Manufacturing International Corp. (SMIC) of Shanghai, in addition to scouting locations in Japan and Singapore. Despite better incentives offered by the Chinese government, Sakamoto said his company's relationship with Powerchip and Taiwan's superior infrastructure swayed Elpida's final decision.

"Yesterday, Powerchip and Elpida had a very friendly relationship, but today we became a family," said Sakamoto. The two companies have been working together for over four years. Elpida will continue to use SMIC as a manufacturing partner in China, he said.

Elpida and Powerchip will initially invest NT$40 billion to get the first DRAM factory up and running. They expect to move production line equipment into the factory by May 2007 and start mass production in August. The joint venture company will begin life with the latest production technology thanks to Elpida, etching transistors and other parts on silicon at the tiny size of 70-nanometers. A nanometer is a billionth of a meter.

Powerchip will take charge of daily operations and staff the factory. By the time the fourth plant is finished, Powerchip reckons it will have hired 8,000 new workers for the joint venture.

Elpida and Powerchip will also co-invest in research and development, they said. Their technology pact will ensure joint development down to the 50nm level and beyond.

The companies plan to sign a final agreement on the joint venture in January.

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