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Elpida Files for Bankruptcy

The average price of a DRAM will increase due to consolidation, cutbacks in production, and a move to higher density parts.
Elpida Memory, the third largest global DRAM manufacturer, has filed for bankruptcy in Japan as the debt-riddled company seeks financial protection from creditors.

The company, which has suffered five consecutive quarters of financial losses, is $5.6 billion in debt. It had been seeking a partnership with other DRAM manufacturers, but an alliance never materialized and the company opted for bankruptcy.

Elpida officials expressed hope that the company could be transformed in the bankruptcy process and remain a major supplier in the DRAM industry.

Falling prices and weaker demand have contributed to Elpida’s financial woes. The average contract price of a 2 gigabit DRAM fell 59 percent in 2011, while spot market prices for the device dropped 70 percent, according to researcher DRAMeXchange in Taiwan.

Elpida’s financial troubles may benefit its competitors including Samsung and Hynix. Some of Elpida’s customers may move business to those companies if they think Elpida will be unable to meet DRAM volume requirements.

DRAM buyers should not see any impact in the short term. Spot market prices have been firming and contract prices will likely follow suit, according to Brian Matas, vice president of research at IC Insights, a researcher based in Scottsdale, Ariz. Prices may increase in the second half although for the year, the average price of a DRAM including all densities will drop 4 percent, said Matas.

Matas also noted that there should not be any “noticeable changes in supply and demand until the fourth quarter or next year.”

“Bankruptcy is one thing. Ceasing production altogether, which we don't expect, is a completely different game,” said Matas.

Longer term, DRAM prices will inch upward “with Elpida and probably several smaller Taiwan DRAM suppliers either leaving or having less influence in the market,” Matas noted. “More of the DRAM market will be in the hands of fewer suppliers. This inevitably results in less capacity added in the industry, and therefore average selling prices are likely to be kept steady or increase so that memory suppliers actually can make a profit on their product,” he said.