For executives of Taiwan’s dynamic random access memory chip firms, suffering from the sector’s worst-ever economic downturn, such comments were not exactly music to their ears. After all, they were expecting the government to come riding to the rescue with capital injections, arguing this was the best way to help secure their industry’s long-term future.
But throwing good money after bad is not part of the Kuomintang administration’s plan for restructuring the island’s DRAM sector. Instead, a blueprint has been devised that begins with the establishment of Taiwan Memory Co., a state-run outfit.
Backed by government funding of up to NT$30 billion (US$870 million), TMC will aim to acquire key technology from major overseas players, such as Japan’s Elpida Memory Inc. and U.S.-based Micron Technology Inc. The new entity would seek to consolidate Taiwan’s DRAM businesses, merging production capacities and research teams. TMC’s development of independent technology and expanded brand marketing would then raise the sector’s competitiveness against industry leaders such as South Korea’s Samsung Electronics Co. Ltd.
For the island’s beleaguered DRAM companies, the realization they will have to solve their own financial problems surely comes as sobering news. But given the president’s credentials as an economic realist, there was not much else they could have expected. Ma knows that businesses must be able to operate profitably in order to provide needed employment, and by refusing to allow taxpayers dollars to be spent on short-term fixes, he has signaled that chipmakers need to assume responsibility for the way they have operated in the past.
It is difficult to dispute that years of oversupply, unjustified expansion and falling prices have brought the nation’s memory chip sector to its knees. But as with Britain’s moribund coal industry of the 1980s, which was similarly undermined by declining prices and had no future without government-implemented reform, the overhaul of what was once one of Taiwan’s brightest industries will prove to be a wise one.
Today’s global financial tsunami dictates that governments must be prepared to step in and prop up struggling segments of their economies. However, great care must be taken to avoid being drawn into battles that cannot be won.
By acknowledging that economic realities dictate the business landscape, the KMT administration is on the right course with its plan to restructure the nation’s DRAM industry. While there may be short-term pain for the island’s individual chipmakers, the decision augurs well for the sector’s turnaround and Taiwan’s economic future.
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