Japan's Elpida Memory filed for bankruptcy protection Monday, days after one of the world's biggest microchip makers admitted it was struggling to solve its debt problems. In the biggest corporate failure in Japanese manufacturing history, the company went to the courts to seek shelter against liabilities totalling 448 billion yen ($5.53 billion).
Separately, its major subsidiary Akita Elpida Memory also filed for bankruptcy protection with 7.9 billion yen of liabilities, the company said. "We sincerely regret any inconvenience caused... for creditors as well as the people who have been supporting us," it said in a statement. Elpida President Yukio Sakamoto, once hailed as a corporate turnaround specialist in the chip sector, was expected to step down, Kyodo News said.
Elpida is the world's third-largest maker of the dynamic random access memory (DRAM) chips used in mobile phones and other personal electronics, but the punishingly high yen and fierce competition have made life difficult. "Its balance sheet has not been stable amid intensifying competition in the international DRAM market as well as due to its high costs," said Tokyo Shoko Research, which specialises in bankruptcy data.
The move came after Elpida failed to find ways to survive via possible tieups and requests for fresh bank loans, said another research firm Teikoku Databank. Chronic poor DRAM demand in the PC sector has pushed the company to seek court protection from creditors and give it time to find a suitor who can help it rebuild, the research firm said. Elpida was established in 1999 from a merger of the chip making divisions of electronics giants NEC and Hitachi. It became Japan's only DRAM maker in 2003, when Mitsubishi Electric sold its chip division to the company.
Elpida aggressively invested to boost its capacity, particularly in 2006 through 2007 as a producer of premium DRAM for PCs, mobile handsets and digital appliances, gambling that the market would continue to expand.
But it fell victim to global market volatility in the year to March 2009, when DRAM prices sharply fell, slicing away its earnings. A deep global economic slowdown since then has significantly weakened global DRAM demand, driving down prices further, while South Korean and Taiwanese rivals intensified competition. Elpida has also been hamstrung by the strength of the yen, which has soared as currency speculators piled into the safe haven amid global turbulence.
Elpida managed to survive in 2009 as the government-backed Development Bank of Japan took Elpida shares worth 30 billion yen. The DBJ also joined three other private banks to throw lifeline loans worth 110 billion yen at the time. But the sustained strength of the local currency, falling DRAM prices and toughening competition squeezed the company, which was also hit hard by the severe Thai flooding last year that disrupted supplies chains. "We have concluded that, if we continue the business by ourselves, we will face cash shortage soon," Elpida said in an English language statement Monday.