TOKYO — In its first major industry bailout since the start of the global financial crisis, Japan said Tuesday that it had put together a package of $1.7 billion in public and private money to shore up a troubled chip maker, Elpida Memory.
By using public money to prop up Elpida, Japan hopes to salvage its only major maker of dynamic random access memory chips, or DRAM, considered vital to its electronics industry. The aid package also protects the nearly 6,000 workers at Elpida, which suffered record losses last year as the demand for semiconductors fell sharply.
But in using taxpayers’ money, the government also risks keeping feeble companies on life support, which ultimately could hurt Japan’s competitiveness, analysts said. Japan has set aside 2 trillion yen, or $21 billion, in public funds to aid companies hurt in the economic slowdown.
“It’s a fine balance,” said Shinichi Ichikawa, the chief equity strategist for Japan at Credit Suisse. “Japan has decided it must save Elpida for the sake of Japanese industry,” but “going too far means keeping zombie companies alive.”
The bailout follows similar moves in other countries. The United States has poured billions of dollars in taxpayer money into the automakers General Motors and Chrysler, while Germany has shored up the automaker Opel with taxpayer money.
Japan’s rescue plan comes during its worst recession since World War II. On Tuesday, the government said Japan’s unemployment rate rose 0.2 percentage points, to 5.2 percent, in May, the highest level in nearly six years.
The Japanese economy has contracted for 12 consecutive months, despite government efforts to bolster growth with stimulus spending. Weak domestic demand and a dwindling population mean that recovery remains at the mercy of its struggling exporters, concentrated in autos and electronics.
As a maker of DRAM chips, which are used in PCs, Elpida is seen as especially important to the country’s electronics industry. Japanese officials fear that Elpida’s demise would force domestic manufacturers to rely on overseas rivals like Samsung Electronics of South Korea, the market leader.
Elpida is reeling amid a collapse in demand and an oversupply in chips that has caused prices to plummet. It suffered a loss of 179 billion yen in the year to March, after a 24 billion yen shortfall a year earlier. Weaker players, like Spansion of the United States and Qimonda of Germany, filed for bankruptcy protection earlier this year.
“Elpida is Japan’s only DRAM maker, and it has been hit by extremely severe conditions amid the global economic slump, despite its superior technology,” the trade minister, Toshihiro Nikai, said Tuesday. “Securing a supply of DRAM is very important for Japan’s industry and livelihood.”
Elpida’s aid package of 160 billion yen includes 40 billion yen in public funds and loans from the state-run Development Bank of Japan, and 100 billion yen in loans from private banks, according to a statement by the trade ministry.
Taiwan Memory, a chip maker set up by the Taiwan government to reorganize the island’s own struggling chip sector, will also invest 20 billion yen in Elpida, the ministry said. Taiwan Memory had recently announced it would partner with Elpida to develop memory chips for cellphones.
Elpida’s bailout is the first under an emergency measure that makes public money available to businesses hurt in the global economic crisis, part of the economic stimulus plans championed by Prime Minister Taro Aso. Companies that accept public money are required to develop strategies to turn around their businesses in three years.
Elpida will use the bailout to invest in cutting-edge technologies, the company’s chief executive, Yukio Sakamoto, said.
“In the competitive DRAM industry, companies without the capacity to invest are sure to lose out,” Mr. Sakamoto told reporters after the rescue package was announced. The challenge for Japan is how to handle companies seeking public funding that are shouldered with woes that go beyond the financial crisis.
Another company, Pioneer, a long-struggling electronics maker, is expected to seek billions of yen in aid, for example. Excessive government intervention “hampers necessary consolidation and industry shake-out, sapping the nation’s industrial vigor,” Nikkei, Japan’s largest business daily, wrote in a recent editorial. “The government fosters moral hazard if it extends a helping hand too readily.”
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