Taipei/Seoul/San Fransisco: A government bail-out of Taiwanese memory chip companies would only prolong one of the worst slumps the industry has ever seen, analysts and executives in the rest of Asia and the US have warned.
Taiwanese contract manufacturers of dynamic random access memory, the type of memory chip used in computers, brought in $8bn (Dh29.4 billion) in revenue last year and accounted for about a third of world production.
This places them at the centre of one of the hardest-hit segments of the global IT industry as a result of the economic downturn.
Dram industry revenues worldwide declined by a fifth this year, according to market researcher iSuppli, and the market price for Dram, now at a historic low, stands at just a third of production cost.
The Taiwanese government, wary of letting an industry that employs 10,000 people and has $12.5bn in bank loans go under, is now contemplating a bail-out for the big Dram companies that would be tied to some form of industry restructuring, such as consolidating the four big companies.
This might include government loan guarantees or rolling over existing loans, although Ma Ying-jeou, the president, ruled out a capital injection.
This was welcomed by analysts and industry executive outside Taiwan. James Kim, the vice-president of Hynix, South Korea's second-biggest Dram maker, said that Korean suppliers are much less reliant on outsourcing production than their Japanese and American rivals, and so would not be hurt by trouble among Taiwanese manufacturers. Kim said that in the event of consolidation in Taiwan, Hynix would probably scale back outsourcing further.
"If they ask for higher subcontracting fees, then we will no longer ask them to make products for us because we can make chips at our domestic plants," said Kim.
Avi Cohen, a semiconductor expert, who is director of research at Avian Securities in the US, said that Taiwanese Dram companies had been in trouble for a long time and would be among the first candidates for elimination because of their high production costs.
"The argument is that the remaining players - Hynix, Samsung and Micron - will benefit to some degree if the Taiwanese guys go away completely or go away in part, so if the government of Taiwan is extending more loans or guarantees that keeps them alive longer that actually hurts the future prospects of those three," Cohen added.