Japan's Elpida May Seek Government Funds

Japan's Elpida Memory said it may seek government funds under a new scheme aimed at supporting nonfinancial firms hit by the economic crisis, and the PC memory maker's shares gained more than 5 percent.

Elpida, the world's No.3 maker of dynamic random-access memory (DRAM) chips, has been battered as the sector goes through its worst-ever downturn due to a chronic supply glut coupled with a slump in demand.

The company has enough cash for daily operations but it still needs funds for future investment after being forced last year to redeem most of a 50 billion yen ($559 million) convertible bond due to a slide in its share price.

The Japanese cabinet approved a bill on Tuesday aimed at shoring up struggling firms outside the financial sector. The government aims to pass the bill in the current parliament session and could begin accepting applications this spring.

"We are considering various options and would not rule out the use of public funds. At this stage, however, we are only informally considering applying for public funds, as the public fund scheme has not been passed into law yet," said Elpida spokeswoman Kumiko Higuchi.

The Nikkei business daily reported earlier that Elpida may seek tens of billions of yen from the government. In exchange for funding, Elpida would issue preferred stock to the Development Bank of Japan, the newspaper said.

The DRAM industry woes forced Elpida's smaller rival Germany's Qimonda to file for insolvency, and Elpida itself has been discussing a possible merger with Taiwanese DRAM makers Powerchip and ProMOS Technologies.

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The fall of Qimonda helped boost DRAM prices, but manufacturers are still losing money on each chip they make.

Mitsubishi UFJ Securities analyst Yukihiko Shimada said any fund-raising through the government would be positive for Elpida, which competes with Samsung Electronics and Hynix Semiconductor.

"Elpida has issued MSCB (moving strike convertible bonds) for future investment rather than for day-to-day operations, and the need for such investment has not faded," he said. 

"If Elpida received funds, that would put it ahead of rivals in investments on next-generation technology. And if it's a company that can get support from the Japanese government, that would also help it win trust from PC makers when they look for long-term contracts," he said.

The Nikkei said that Elpida was likely to include the plan to merge with Taiwanese DRAM makers in its application for government funds, but that it would also continue to consider seeking funds even if the merger talks fell through.

Shares in Elpida rose 5.4 percent to 643 yen by midday, outperforming a 2.2 percent gain in the Nikkei 225 Average .

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