After DRAM price dropped for two years and remaining loss in eight consecutive quarters, most DRAM vendors are tight on cash now. The situation becomes more critical when the chip price has already remained below “Cash-Cost” level for past two quarters. Previously the low operating cash flow can be offset by the depreciation amount while price is above cash-cost level thus company can have higher chance to survive along with the financial loss.

Given the sequentially negative cash flow and lower cash on hand, DRAM vendors find themselves struggling in the battle of survival. Maintaining daily operation will be a tough task and not to mention about upcoming debt payment and scheduled CAPEX. We believe the cash level will accelerate to decline in a foreseeable manner if they can’t obtain any external assistance. That is, liquidity has turn to the priority of company survival matters.

Even though DRAM vendors can solve the financial problems now, future competitions still rely on the advanced technology development, which will require costly capital to achieve. Needs either for short-term financial problems or for long-term company competitiveness, DRAM vendors are urgently looking forward any possible capital injection to make it through the downturn period.

It is very difficult to raise money during 4Q08 and 1Q09 due to the frozen capital market. However, with gradually functioned capital market, DRAM makers are aggressively planning to raise money to meet the operational need. With existent syndicate loans and high debt ratios, DRAM makers are very unlikely to obtain any new loans from banks since banks are more cautious and risk-oriented toward the lending to DRAM industry after ProMOS’ case. That is, DRAM firms tend to raise money by selling common stocks or private placement arrangements.

As for Micron and Elpida, most of their new capital will come from the proceed of selling common stocks. Hynix appears to be the most aggressive player not only succeeded in selling common stocks but also receipt new loans from syndicate banks. Domestic vendors such as Inotera, Nanya, and PSC have made the announcement for selling common stocks in 2H09 and wait for shareholders’ approval in annual shareholder meeting. Winbond and PSC will issue ECB as well.

Global economy did not show any rebound signal and demand is sloppy. DRAM vendors will face the challenging environment if the chip price stays the current status. Effect for Capital injection plans of Taiwanese DRAM vendor’s remains questioned since scary financial burden and plunged stock price may hurt investor’s confidence. DRAM makers still need to keep seeking for new capital injection because no one knows how long the global recession will last.