Analysis: Qimonda flop not surprising, won’t help DRAM slump much

Jan. 27, 2009 – Qimonda’s filing for bankruptcy, while perhaps not entirely surprising, is nonetheless sending shockwaves through the industry, and it’s likely that no matter what happens, the consolidation of the DRAM industry is now underway.

Qimonda says it plans to reorganize and restructure while maintaining focus on its buried wordline technology, after a “financing package” involving Infineon, Germany’s Saxony state, and banks led by an unidentified “leading Portuguese financial institution.” Investors, predictably, were ruthless, cutting QI stock by more than half.

Rumors had been swirling for months, fueled by Micron’s takeover of Qimonda’s share in Inotera, a JV with Taiwan’s Nanya Technology. Profitability had been a problem for some time, though; Infineon spun off Qimonda in 2006 to carve out the memory operations from the rest of its semiconductor business. And while its trench technology for DRAM had reached effective end-of-life, its new buried wordline technology hadn’t gained enough traction, pushing the firm even further behind the competition, noted iSuppli analyst Nam Hyung Kim, in a statement. Moreover, Qimonda’s smaller fabs than competitors mean higher cost structures, compounding the problem of simultaneous cash burn.

Qimonda’s insolvency is already unsettling to Infineon, which still holds ~77% of Qimonda despite repeated efforts to reduce that stake, saw its stock drop in the teens following the news. Also, Taiwan’s Winbond Electronics and Inotera Memories, both of whom make DRAMs on a contract basis for Qimonda, have a combined $129M exposure to the firm, the bulk of that from Nanya and Micron, notes Reuters. Even Mosaid, a Canadian IP firm, says it will feel an impact.

And there is also a regional impact of economic and job losses — 12,200 employees worldwide, mostly in Europe; the Portugal connection comes via Qimonda being that country’s biggest exporter in 200, notes Jim Handy of Objective Analysis notes in a research report.

In the greater DRAM market, Qimonda will only mildly help oversupplies since it accounts for just 5% of total DRAM production, notes Kim. Qimonda held a 9.7% share of unit shipments in 3Q08, though, so Kim does project a slight dip in DRAM bit shipments in 2009, down to <30% from previous 35% expectations. In specific sectors, Kim sees most impact in graphics (where Qimonda accounted for 26% of 3Q08 shipments) and servers (15%-20% shipment share).

“If Qimonda exits the DRAM business, their competitors are likely to prosper while their partners will suffer. Should the company remain intact, they are still more likely to be taken over than not,” writes Handy. “In any event, we anticipate that, by the end of 2009, there will exist at least one less DRAM maker.”


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