Despite the coming slowdown in the semiconductor industry, Elpida Memory, the world's fifth-largest manufacturer of dynamic random access memory (DRAM), is going forward with a planned $990 million IPO next month, with an expected offering price of $31 a share.
It's a risky move for the memory maker. It will use the proceeds from the offering to partially fund a $4.6 billion facility in Hiroshima, Japan. Construction will take place during the chip industry slowdown expected to hit over the next two years, and the facility will be ready to churn out chips as the industry ramps up demand again in 2007. Or so the company hopes.
Elpida Memory also has hanging over its head a U.S. Department of Justice investigation into DRAM price fixing. Competitor Infineon Technologies
And while the semiconductor market is cyclical, there's nothing to suggest it will fall in line with Elpida's anticipated cycle. Worldwide DRAM output slowed for September, increasing only 3.8%, which would make achieving targeted output goals far more difficult if the trend continued and would push back any industry recovery. There have been conflicting reports of when the downturn is going to begin in earnest, though most expect it won't be as bad as the tumble the market took in 2000. The sector is still working out inventory buildup issues that caused Intel
Though Elpida Memory is Japan's sole dedicated manufacturer of DRAM chips and it seeks to gain enough market share to take over the No. 3 position, U.S. investors should not get too excited about the spinoff just yet. The stepchild of NEC
Unlike the U.S., Japan's IPO market is booming, with many offerings fetching higher prices than their pre-listing schedule or becoming oversubscribed. Some have even gone off at twice the anticipated price. Whether Elpida Memory benefits from the mania sweeping Japanese markets remains to be seen.
For related Fool analysis, see:
Fool contributor Rich Duprey subscribes to a diet of Krispy Kreme doughnuts and Coors Light. He does not own any of the stocks mentioned in this article.