September 19, 2011 - One month ago we reported how a historically strong yen is squeezing many Japanese companies still recovering from the March 11 earthquake and tsunami. Now there's a clear victim within the semiconductor industry: Elpida Memory is cutting back production at its flagship Hiroshima facility and sending more work to Taiwan partner Rexchip Electronics, its majority-owned JV with Powerchip. The company officially says such a shift to Rexchip is only "under consideration" and at the stage of "a feasibility study," but makes it clear why this is being considered: "historically high yen against the dollar and DRAM market deterioration."

Media reports indicate up to 40% of Elpida's domestic capacity (consisting entirely of Hiroshima) could go to Rexchip -- roughly 50,000 wafer/month (300mm) worth of equipment, plus ¥20B required to build a cleanroom adjacent to existing facilities there. Rexchip currently has about 85,000 wafers/month capacity, vs. 120,000 wafers/month for Hiroshima -- meaning the influx would give Rexchip the majority of Elpida's output. The Taiwan partner would produce commodity DRAM, while the Hiroshima plant would focus on memory for smartphones, points out the Nikkei daily.

Lane Mason, an analyst with Objective Analysis, told SST that Rexchip "has proven to be a very good fab, fast ramp and smooth transition to successive Elpida DRAM designs." But there is some confusion about the device mix from the two companies, whether there has been too much mobile DRAM coming down the pipe, or whether devices are being put into die bank. "Personally, I think the Mobile DRAM market is oversubscribed," he said.

Rexchip's R1 300mm fab stands at 85,000 wafers/month capacity. The original plan in 2006 called for a cluster of four 300mm fabs encompassing 240,000 wafers/month capacity; some suggest the proposed R2 fab shell idle since 2008 could be put to use for the new influx. Mason, though, thinks the empty shell "would take a long time to get to production," a year or more, "so how does that help today?"

Besides a soaring yen, which is still hovering around a nearly post-WWII high of ¥77/$1, DRAM prices continue to plummet, down by roughly two-thirds over the past 12 months (IHS iSuppli projects $1.25 ASPs for DDR2 are possible by 4Q11, down from $4.70 in 3Q10). And PC demand continues to be soft. As another measure, the company also is shifting its mainstream chip density from 2GB to 4GB and upgrade its Hiroshima lines to ≤30nm processes "as quickly as possible." Elpida also is pledging to increase purchasing in US dollars and tweaking procurement strategies of equipment and materials to help minimize risks to foreign currency imbalances.

Asked whether a major and taxpayer-supported company such as Elpida moving operations overseas further fuels the "hollowing out of Japanese industry," Elpida president Yukio Sakamoto pointed out to the Nikkei daily that the company has maintained technical leadership while paring down manufacturing costs, but he acknowledged that the yen's relentless march is simply too much: "We are at our limit with the yen at the mid-80 level against the dollar." (Note that the yen has been below that level since April.) On top of that, DRAM makers have been slashing output as customers adjust their own inventories to try and relieve the glut and rebalance supply/demand conditions, but "it will probably take another month or so for the market to recover," he said.