What is hot in the memory chip sector?

Taiwan is setting up a new company to pull together six struggling computer memory chip makers and bring in technology from Japan's Elpida or US-based Micron in a sector suffering from its worst ever slump.

The government expects the move to fend off the industry's dominant players, Samsung Electronics and Hynix Semiconductor of South Korea.

Following are answers to key questions about the market for DRAM or dynamic random access memory:

What does this mean for the global industry?

The consolidation led by Taiwan will leave the $25 billion sector with four major DRAM makers globally -- Samsung, Hynix, "Taiwan Memory Co" and one other company that would be left out of the Taiwan consolidation (either Micron or Elpida).

The reshaped landscape might help Taiwanese suppliers -- which make nearly a quarter of all the world's DRAM memory chips -- to get a stronger grip on output, especially after companies recklessly built up output in the last many years. Elpida may need funds before the Taiwan plan can be implemented.

What is the outlook for Taiwanese chipmakers?

There's likely to be no impact in the short term because it will take about six months to set up the new company, while chipmakers, including ProMOS and Powerchip are still strapped for funds.

The government did not give any specifics on how the new company can bring local DRAM makers together, but any de-listing of a company in such a consolidation could face opposition from shareholders.

In the long term, some analysts say this move might force some of the debt-ridden chipmakers to consolidate their capacity into the new company. Taiwan Memory Co could become a centralised foundry and DRAM makers would diversify into sales and marketing.

The six chipmakers to be involved in the plan are: Powerchip, Nanya Technology, ProMOS, Inotera Memories -- joint venture between Nanya and Micron -- and Rexchip, unlisted joint venture between Powerchip and Elpida.

Is this a chance or threat for Samsung, Hynix?

Benefiting from more advanced production technologies, Korean makers such as Samsung and Hynix could further tighten their grip on the industry, while Taiwan Memory struggles to slowly integrate several companies and technologies into one entity.

Taiwan Memory could end up becoming a formidable threat to No. 2 Hynix, which may have to seek more funding for technology investments. Still, analysts say whether Taiwan's government can inject more funds into Taiwan Memory remains a question.

What is the outlook for DRAM prices?

Even after the government's move, any significant recovery in memory chip prices is unlikely in the short term. So far this year, memory chip prices have been flat but slumped about 50 per cent in the fourth quarter of last year as a global economic slowdown hurt spending on personal computers and other gadgets that use memory chips to store data.

Analysts' forecasts for global PC shipments in 2009 vary, but many expect sales to fall. Research firm IDC expects PC shipments to drop 4.5 per cent this year.

Agencies