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Taiwan eyes memory chip bailout

Taiwanese government has responded to an ailing industry by offering loans, according to a variety of reports.

Taiwan will likely rescue, in some form, failing memory chipmakers, as that country's industry falls behind the rest of the world.

Newest DDR3 DRAM memory module
Newest DDR3 DRAM memory module Micron Technology

Recent reports depict an industry desperately seeking financial help. The Taiwanese government has responded by offering loans, according to a variety of reports.

(See also: Chip sales dip in October, flash sales dive.)

One report on Thursday said that Taiwan's economic affairs ministry has approved a rescue package. No specifics have been revealed, however.

At stake is Taiwan's dynamic random access memory (DRAM) industry. DRAM is the main memory used in personal computers.

Avi Cohen, managing partner at Avian Securities, which covers memory chip market movements, says "it's something (the government) will have to do if they want to keep all those people employed" at DRAM manufacturers in Taiwan.

And why is this happening? "The Taiwan DRAM industry is falling further and further behind in terms of cost and in terms of production volumes. They have the worst cost basis," Cohen said. "The guys that can produce DRAM on the newest equipment are the most competitive. And therefore can eke out a little profit. Everybody else loses money."

And the companies that lose money? Taiwan-based DRAM makers like Powerchip Semiconductor and ProMOS Technologies--which have been appealing to the government for immediate aid.

The winners (in relative terms since all companies are facing challenges) are companies such as South Korea-based Samsung and U.S.-based Micron Technology. Both Samsung and Micron are comparatively aggressive about moving to next-generation manufacturing process technologies to keep the cost per megabit of memory produced down.

But rescuing the companies will not necessarily be a good thing for the market. "The overproduction that exists in DRAM and all of memory for that matter will likely continue. If you want this market to get some semblance of sanity and reasonableness, you may want to see players go out of business."