By Mayumi Negishi
TOKYO (Reuters) - Japan pledged to shore up Elpida Memory Inc <6665.T> with public money, bringing the total aid coming to the loss-making chip maker to $1.7 billion as it struggles compete with its larger South Korean rivals.
With an injection of 30 billion yen ($313 million) from the government, Elpida will become the first Japanese firm to get aid under a scheme that makes public funds available to businesses hit by the global financial crisis.
The aid package includes a possible 20 billion yen capital injection from Taiwan Memory Company, which was set up by Taiwan to save its own chip sector and had chosen Elpida as a technology partner.
Elpida is Japan's last hope in PC memory chips in an industry dominated by Samsung Electronics <005930.KS> and Hynix Semiconductor Inc <000660.KS>. Elpida lost the No 3. slot to U.S. chipmaker Micron Technologies
Years of price slides and weak consumer demand have hammered the sector, dragging Samsung's chip operations into the red and forcing Germany's Qimonda
"This ensures that Elpida will survive, but can it win?" said Yoshihiro Shimada, chief analyst at research firm SPI Analysis.
"That depends on how quickly it can catch up to its competition in shrinking its chips."
Elpida, which posted its sixth straight quarterly loss in January-March, has fallen behind Samsung in using smaller circuitry on its DRAM chips, which are mainly used to power PCs.
Smaller circuitry on semiconductors allows makers to pack more power onto smaller chips and lower per-chip costs, but it also yields more chips per wafer and exacerbates oversupply.
Chronic losses have eaten into capital at Elpida, crippling its ability to invest in new technologies.
"It will be a bad news for Korean makers which have benefited from price competitiveness with the most up-to-date production lines," said Song Myung-sup, an analyst at HI Investment & Securities in Seoul.
Elpida's shares ended up 1.4 percent, having risen more than 60 percent over the past three months, helped by media reports on the government aid and its tie-up with TMC. The benchmark Nikkei average <.N225> has added about 20 percent over the same period.
Elpida's shares tumbled nearly 90 percent in 2008.
JAPANESE SUPPORT FOR COMPANIES
Struggling electronics maker Pioneer Corp <6773.T> is seeking a capital injection under the same scheme tapped by Elpida, while Japan Airlines Corp <9205.T> is seeking 100 billion yen in loans from the state-backed Development Bank of Japan and private banks.
But the move to support Elpida could trigger protests by overseas rivals. Elpida had earlier petitioned Tokyo to slap a tariff on computer memory chips made by South Korea's Hynix after it received government aid in 2001 and 2002.
"It would be difficult for South Korea take the subsidy issue to the World Trade Organization. It is possible for Micron to sue Elpida in the United States, but given the United States have subsidized all sorts of companies there...it is difficult to justify a case," Song said.
Analysts also say the aid will not solve the underlying issue of weakening demand.
Elpida said the new money would help it meet debt and corporate bond repayments of 127 billion yen in the year to March, as well as boost capacity at its Hiroshima plant.
The spot price of DRAMs is around $1.10 per gigabit of "double data rate 2" memory, far below the $1.50 to $2 range Elpida has said it needs to make a profit.
"Elpida is Japan's only DRAM maker, and it has been hit by extremely severe conditions amid the global economic slump, despite its superior technology," Trade Minister Toshihiro Nikai told reporters.
Elpida is due to issue 30 billion yen in preferred securities to the Development Bank of Japan in August, which will also extend 10 billion yen in loans, Japan's trade ministry said.
Private banks will also provide 100 billion yen in loans, the ministry said, while Elpida is also considering putting money into Taiwan Memory.
($1 = 96.06 Yen)
(Additional reporting by Taiga Uranaka and So-eui Rhee; Editing by Edwina Gibbs and Anshuman Daga)
