Japanese Memory Chip Maker Elpida Enters Bankruptcy Court
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Japanese Memory Chip Maker Elpida Enters Bankruptcy Court

March 5, 2012

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In Japan’s largest manufacturing bankruptcy on record, the memory-chip maker Elpida Memory Inc. has filed for bankruptcy protection with $5.6 billion in debts, reports Reuters News. Elpida entered the protection of the bankruptcy court after accepting investments and loans of $500 million from the Japanese government.

Despite the federal funding, it seems, Elpida was unable to keep up with competitors in Korea. Now, sources note, company leaders hope to put Elpida through a reorganization that resembles Chapter 11 bankruptcy protection offered in the United States, which allows companies to reorganize their debts and pay off creditors according to court-mandated priority.

In the past, Japan and Elpida were at the helm of the dynamic random-access memory (DRAM) chip market, but have since fallen behind, in part because of fierce and well-funded competition from manufacturers in Korea.

Another factor that has contributed to Elpida’s financial woes, it seems, is a global shift away from devices that rely on DRAM chips and toward those that use mostly flash memory (such as the Apple iPad). Yet another force that hindered Elpida’s ability to compete globally was the strength of the Japanese yen, which made Japanese DRAM chips more expensive than those produced in countries with weaker currencies.

In response to the company’s bankruptcy filing, stock prices for Micron Technology, a United States-based chip maker, jumped 7.8 percent. Investors, it seems, are betting that Elpida will not be able to recover from the bankruptcy filing and will exit the market, of which it currently holds about a 12 percent share.

And of course, sometimes corporate failure becomes a self-fulfilling prophecy. If Elpida’s customers worry that the company will not emerge successfully from bankruptcy, they are likely to turn to other chip providers to ensure that they aren’t left in the lurch, should Elpida go under entirely. This loss of revenue from clients could undermine any efforts Elpida makes at recovery in bankruptcy court.

Elpida’s decision to seek bankruptcy was fueled largely by debts to the tune of 92 billion yen that were coming due in the next few months. Many of those lenders had issued a deadline of this month for Elpida to introduce a repayment plan or a scheme to turn around the dismal returns the business is currently producing.

One official at the company reportedly noted that Elpida still has some money on hand, which may make its bankruptcy process run more smoothly than it might have had it waited until it was completely out of cash.


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