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December 10, 2007 |
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ELPIDA MEMORY: S&P Assigns BB- Corporate Credit Rating Standard & Poor's Ratings Services assigned its 'BB-' long-term corporate credit rating to Elpida Memory Inc. The outlook on the long-term corporate credit rating is stable. The rating primarily reflects Elpida's profile as a specialist maker of Dynamic Random Access Memory (DRAM) silicon chips, a market that is characterized by high earnings volatility, and the company's heavy financial burden, given that it is required to make regular large investments to maintain and improve its competitiveness. The rating also reflects how resistant Elpida's earnings are to deteriorations in the market as a result of the company's focus on producing high-value-added products and enhancing cost competitiveness. At the same time, Standard & Poor's also assigned its 'BB-' long-term senior unsecured debt ratings to Elpida's unsecured straight bond issuances, series 1 through 6. Elpida is the only specialist DRAM maker in Japan. Business risk in the DRAM industry is relatively high due to severe price competition, massive technological innovation risk, and a heavy investment burden. To increase the strength and stability of its revenue base, the company has striven to expand sales of DRAMs for digital consumer electronics and mobile devices, which have relatively low exposure to price volatility as the technological barriers to entry for these products are high. Elpida has also sought cost reductions by outsourcing the production of DRAMs to foundry companies, and is improving its production efficiency by refining the circuit line width of its chips. As a result, the company has been steadily increasing its share of the global DRAM market, as well as augmenting the resistance of its earnings to market deterioration. Despite the tremendous pressure on prices, Elpida should be able to mitigate to a degree the downside risk on its earnings because the company refuses to sacrifice profitability to expand market share. Elpida's capital investments for fiscal 2007 (ending March 31, 2008) will likely amount to about JPY240 billion as it will invest in a joint venture in Taiwan. The company's total capital investments in fiscal 2006 amounted to JPY155 billion. Standard & Poor's expects Elpida to continue making investments to strengthen its production capabilities and further refine the circuit line width of its chips, and thus believes it will take several more years until the company is able to turn around its negative free operating cash flow (operating cash flow minus capital investments). On the other hand, Standard & Poor's believes that there is limited likelihood that Elpida's debt-to-capital structure, which stood at 37.7% at March 31, 2007, will deteriorate significantly. This is because the company intends to maintain a certain level of financial soundness with set index targets, such as for its capital ratio and net debt-to-equity ratio (net total debt/shareholders' equity). Also, the company has JPY50 billion in unused short- term commitment lines supplementing its short-term liquidity. The outlook on the long-term corporate credit rating on Elpida is stable. Standard & Poor's expects solid performance in the near to medium term because earnings should improve following the start of production at Elpida's overseas factories and the mass production of products using its 65nm process technology. If Elpida strengthens its market position by reducing costs and expanding its market share, and if Standard & Poor's determines that the company has clearer prospects for financial improvement, we may raise our rating or revise upward our outlook on the company. Conversely, if the business environment deteriorates significantly as a result of an accelerated decrease in prices, if concerns over a weakening in the company's competitive position arise, or if the company's financial soundness decreases dramatically due to its capital investment burden, then we will consider lowering our rating or revising downward our outlook on the company. About Elpida Memory Elpida Memory, Inc. is a Japan-based company principally engaged in the development, design, manufacture and sale of semiconductor products, with a focus on dynamic random access memory (DRAM) silicon chips. The Company offers its DRAM products to companies in the server, digital consumer electronics, mobile phone, personal computer (PC) and foundry markets. Elpida Memory has two domestic subsidiaries, which are engaged in the manufacture of DRAM products, and five overseas subsidiaries, which specialize in the sale of DRAM products to the Company's overseas customers, in the United States, Europe, Singapore, Taiwan and Hong Kong. Through its associated company, Tera Probe, Inc., Elpida Memory is engaged in the wafer testing process. Headquartered in Tokyo, the Company has seven subsidiaries and one associated companies. Seimei Yaesu Building 3rd Fl. 2-2-1 Yaesu Chuo-ku, TKY 104-0028 JPN +81-3-32811500 (Phone) |
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