Elpida takes stock sale gamble

Elpida is taking a gamble in selling its stocks. Some claim that the latest announcement means there will be too many shares in the market, while others are concerned that now is not the right time for brokers to buy.

Elpida announced its plans to raise $987 million (79.7 billion yen) selling shares and convertible bonds, claiming that it wanted to use the funds to move away from DRAM memory to more profitable smartphone chips. 

According to Bloomberg the real reason behind the sales is because the company, which was bailed out by the government in 2009, has seen its shares fall by around 15 percent in Tokyo trading.

Yoshihiro Ito, chief strategist at Okasan Online Securities Co, told Bloomberg the company is selling “way too many shares”, which could land it in some trouble.

The sentiment was backed by Malcolm Penn, top analyst at Future Horizons, who told TechEye: “The reason why Elpida has to sell its shares is that no-one is investing in chip companies, no one wants to give them any money, but it’s a vicious circle because without capacity investment Elpida can’t keep up,” he said.

“Who will buy the shares is the million dollar question. The market is unsure of buying shares and buyers will only currently buy shares they can quickly sell on and make money from – that said, Elpida may not have trouble in a few months with the market looking like it will rise. “

It’s not likely to face anything too drastic as it is in a “much better position than most.”

“The trouble is that these companies need to invest to up their capacity and selling stocks is at the moment the only way to do this.

“If it pulls it off it will give the company a huge advantage over other Taiwanese manufacturers who are struggling.”

Elpida has said that it will be ploughing money into capacity as well as equipping wafer fabrication facilities for volume production using 30 nm and 25 nm process technology in its Hiroshima Plant.  

More money will be splashed on R&D and development for the next generation of processes by March 2013, and some of the cash will go toward debts.