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The Taiwanese government says it will bail out six indigenous DRAM memory makers and mere them into a new entity called Taiwan Memory Company, confirming months of speculation. Government officials are pursuing partnerships with either an American or Japanese chip maker, or perhaps both.

The announcement of the formation of the new company, as reported in Bloomberg, was made at a press conference in Taipei by Yin Chi-ming, who heads up the Ministry of Economic Affairs for the island nation. The government has tapped John Hsuan - who spent decades at United Microelectronics and eventually rose to be chief executive officer before retiring in January 2006 - to lead the new company.

Under the plan put forth by Yin today, the Taiwanese government plans to keep its controlling stake in Taiwan Memory to under 50 per cent. The six DRAM producers who are to be merged include Inotera Memories, Powerchip Semiconductor, ProMOS Technologies, Nanya Technology, Rexchip Electronics, and Winbond Electronics. Yin said that the new company will be formed within the next six months and that it is seeking partnerships with Japanese memory maker Elpida Memory or American memory maker Micron Technology. Talks between the Taiwanese government, Taiwan Memory, and the two partner are expected to be completed in three months or so, and Yin said it was possible that Taiwan Memory would do partnerships with both.

Currently, according to a report in EE Times, Micron already has a joint venture to produce DRAM with Nanya Technology, and Elpida has a similar venture with Powerchip Semiconductor. The consolidation and partnering issue will be complicated by the fact that ProMOS is partnered with Hynix Semiconductor (which has a stake in the Taiwanese memory maker) and Qimoda has a partnership with Winbond Electronics. (Qimoda is in bankruptcy reorganization, and it used to have a deal with Nanya). It is tough to imagine more than a few noses not being out of joint.

All of the Taiwanese memory makers have been hammered by Korean chip maker Samsung Electronics, which has about as much share as the six Taiwanese makers combined these days, according to statistics from Dramexchange Technology, which runs a spot market for chips in Asia. According to Dramexchange, the DRAM makers in Taiwan involved in the bailout had 23 per cent of DRAM sales worldwide in the fourth quarter, compared to Samsung's 25 per cent. Elpida and Micron together had 28 per cent of the DRAM pie.

Lane Mason, memory market analyst at Denali Software, which makes electronic design tools for memory makers, estimates that memory chip makers will lose between $5bn and $6bn globally on sales of between $9bn and $10bn in the fourth quarter of 2008. This is clearly not a sustainable model for anyone, and that is why the Taiwanese government is swallowing the bitter pill of consolidation and partnering to have at least some of the indigenous memory business survive.

No word yet on how much money Taiwan will kick in to make this all happen. Back in January, a figure of around $6bn was kicked around. ®

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