Taiwan's leading memory chip maker, Nanya Technology, appears to be tottering as rivals abroad consolidate control in the market, leaving Taiwan's once-mighty tech sector at the mercy of uncertain international alliances.

President Lee Pei-ing worked to put the best possible face on Nanya's situation at a July 27 earnings presentation. Taiwan's largest producer of DRAMs, or dynamic random access memories, sold 93% of its product for use in devices other than personal computers in the April-June quarter, he said, illustrating the company's strategic shift designed to profit from growing interest in the "internet of things."

But Nanya's earnings overall paint a gloomier picture. Group net profit plummeted 91% year on year to 397 million New Taiwan dollars ($12.5 million) for the quarter as sluggish demand weighed on prices, marking the fifth straight quarter of declines.

Taiwan's memory chip sector boomed along with the PC industry in the 2000s, delivering the island a roughly 20% share of the global DRAM market; that share has since sunk to single digits. Taipei is still home to Computex, a major information technology trade show that rose to prominence during that heyday. But South Korea has since taken the lead in DRAMs thanks to heavy investment, leaving Taiwanese rivals in the dust. Nanya's market share has fallen to 3%, while compatriots such as Powerchip Technology and ProMOS Technologies have pivoted to contract manufacturing or chip design. No company here has become a major player in flash memory, the current hot commodity used in devices such as smartphones.

Safety in cooperation

Taiwan's DRAM industry has no way to recover, according to Avril Wu, a research director at survey firm TrendForce. The PC market has itself matured, pushing players out of an arena once their lifeblood. In addition, most patents related to DRAMs are held by global market leaders, forcing Taiwanese companies with little tech of their own to make large royalty payments, Wu said.

Nanya is not ready to give up without a fight. It sees closer cooperation with Micron Technology, the third-largest DRAM maker globally, as its last chance for survival. Last December, Nanya said it will sell to the U.S. chipmaker its entire stake in their joint venture, Inotera Memories. Nanya plans to put NT$31.5 billion, or 66% of the funds it will gain from the deal, into newly issued Micron shares.

Micron's reasons for agreeing to this are murky. Inotera continues to pump out red ink, and serves the PC market, where there is little prospect for growth. Making the venture into a subsidiary would only drag on the U.S. company's earnings.

Industry sources point to the presence of Chinese rivals as a possible factor. If a Chinese company were to acquire Nanya with help from the government, Micron could easily come under fire in a worldwide offensive. Proactively strengthening ties to the Taiwanese company could be intended to avoid that fate. There are also rumors that Micron is itself aiming to cooperate with Chinese players.

As world market leaders fight to reshape the memory market, investors can only hope Nanya does not get lost in the shuffle.

By: DocMemory
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