Faced with a DRAM oversupply followed by a global
economy downturn, the DRAM market experienced an acute price slump –
including sharp declines in PC DRAM prices – that lasted longer than
two years. As a result, Elpida suffered a negative earnings
performance, which we recognize was a disappointment to our
shareholders.
But we now believe the business road ahead looks more favorable.
Since summer 2009, the global economy has been showing signs of
recovery. Global sales of notebook PCs, digital TVs, smart phones and
other electronic equipment have turned favorable, leading in turn to
higher demand for DRAMs and a quickly revitalized market. Also, as the
prolonged slump in market prices discouraged DRAM makers from making
large capital investments, manufacturing volumes have only slightly
risen. As a result, the balance of supply and demand has tightened,
opening the door to considerable improvement in DRAM selling prices.
During the slump in market prices, Elpida did not let up on R&D. We
continued to develop advanced processes and optimize chip design. As a
result, we were able to improve productivity through such measures as
implementing new technologies and boosting yields, both of which helped
reduce costs. This put us in a position to enjoy much more robust
earnings when market prices started to recover. Thus, in the third
quarter of FY2009 we had net sales of 151.0 billion yen, up 2.4 fold
versus a year ago, and operating income turned into the black after
posting a loss of 30.4 billion yen a year ago.
Strengthening our financial position and boosting competitiveness
In order to improve our financial position, which had been hard hit by
the prolonged slump in market prices, and solidify our competitive
position in the DRAM industry, Elpida last year made an application to
the Japanese government under the Act on Special Measures for
Industrial Revitalization and Innovation of Industrial Activities.
After a business restructuring plan was submitted to and approved by
the Ministry of Economy, Trade and Industry ("METI"), Elpida arranged
for a private placement of 30 billion yen in preferred stock to the
Development Bank of Japan Inc. (the "DBJ").
In addition, based on indications since last September of a full-scale
recovery of DRAM market prices, we decided to make our business
restructuring plan more aggressive by procuring yet more capital
through a public offering of 55 million shares of common stock, which
raised 60.4 billion yen. At around the same time, with the help of our
core banks we arranged a loan facility consisting of 100 billion yen in
syndicated loans from financial institutions and obtained a 10 billion
yen loan from the DBJ.
Elpida is now using these proceeds to develop new Premier DRAMs, TSV
technology and other advanced technologies, purchase advanced
manufacturing equipment for use in 40nm process production and pay down
interest-bearing debt. These financing actions are intended to
substantially bolster our competitiveness and strengthen our financial
foundation.
Expanding ties with Taiwanese makers
In addition to the manufacturing partnership we established with
Taiwan's Powerchip in 2002, followed later by Rexchip, a manufacturing
joint venture with Powerchip, in FY2009 we have entered into basic
agreements with ProMOS and Winbond. These latter two Taiwanese
companies will supply us with DRAM products starting later this year.
These partners provide us with a greater product supply capacity,
enabling us to respond more effectively to the demands of our customers.
Also, Elpida and Rexchip are now preparing to create an R&D center
at Rexchip to enable us to work jointly on new technologies. By
combining the technology capabilities available in Japan and Taiwan,
the new center will support more rapid development of advanced
technology and create new methods for lowering development costs, which
will help both companies to grow.
As we take on the business challenges ahead of us, we greatly appreciate your continued support and encouragement.
