Elpida to raise $990 million for new chips
Elpida Memory Inc plans to raise nearly 80 billion yen ($992 million) through new shares and convertible bonds as it shifts production away from DRAM memory to more profitable smartphone chips.
Shares of the Japanese company, the world's No.3 maker of DRAM chips, slumped as much as 15 percent, wiping some $360 million of its market value of $2.4 billion after Reuters first reported what will be the biggest equity financing in Japan since the March 11 earthquake. The shares ended the day down 13.3 percent.
The fundraising will severely dilute the equity of existing shareholders, but Elpida needs cash to invest in cutting-edge technology as it chases South Korean industry leaders Samsung Electronics Co and Hynix Semiconductor Inc into more profitable chip lines and defends market share against U.S. rival Micron Technology Inc.
Investors realize that semiconductors are capital intensive. What they want to know is how and when will the investment be turned into profit, said a fund manager in Tokyo, who declined to be identified because he was not authorized to speak to the media.
As the global chip industry consolidates, the expectation is that Elpida will just about survive, he said.
The company will issue 52.2 billion yen in new shares and 27.5 billion yen in convertible bonds, Elpida said in filing to the Financial Services Agency. Elpida has hired Daiwa Securities and Morgan Stanley MUFG Securities as lead underwriters for the fundraising.
In the first quarter of 2011, revenue from the global DRAM industry slumped to $8.2 billion from $10.8 billion three quarters earlier as sales of PCs tumbled, according to research firm iSuppli.
The latest fundraising exceeds the 63 billion in capital raised by property firm United Urban Investment Corp in May. It comes after Elpida's Taiwan listing in February with the issue of Taiwan depositary receipts (TDRs) raising T$4.26 billion ($148 million).
Elpida plans to use the money to invest in the production and development of memory chips for smartphones, tablet PCs and other devices.
Elpida said in May it planned to cut capital outlays this year by 32 percent to 80 billion yen and focus on shifting production to its advanced 30-nanometre and 25-nanometre lines instead of on volume expansion.
Elpida, Japan's sole maker of dynamic random-access memory chips, is struggling with a slump in demand for PC memory chips.
Major spending plans after the fundraising include 25 billion yen on a new factory in Hiroshima, western Japan by 2013. The company also said it will uses part of the money to repay existing debt.
In January-March, the company reported a quarterly operating loss of 5.2 billion yen, against a profit of 37.8 billion yen the previous year.
($1 = 80.640 Japanese yen)
($1 = 28.765 Taiwan dollars)
(Additional reporting by Kentaro Hamada; Writing by Tim Kelly; Editing by Joseph Radford, Anshuman Daga and Matt Driskill)
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