The company will be run by John Hsuan, an honorary vice chairman and former CEO of contract chip giant United Microelectronics, said Yiin Chii-ming, Taiwan's economics minister. The government will offer funding to the new company but will not own more than 50 percent of shares, he said.
Hsuan said Taiwan will choose either Elpida Memory of Japan or U.S.-based Micron Technology as a technology partner for TMC within the next three months. Research, development and chip design work will begin at TMC within six months.
The plan comes amid a global recession that has seen other nations such as the U.S. spend billions of dollars bailing out banks and other companies such as auto makers. Taiwan may be the first to agree to a technology industry bailout, but it faced few palatable choices.
A memory chip glut caused DRAM companies globally to start posting losses nearly two years ago and their problems have worsened with the global economic decline. Although companies have cut back on chip production and shut older factories, falling demand for PCs, where most DRAM chips go, have further hurt the market, and new loans to finance factory improvements have become difficult to obtain.
Earlier this year, Taiwanese officials said they had to do something about their DRAM makers because they hold so much debt, an estimated NT$430 billion (US$12.28 billion), much of it payable to Taiwanese banks. A default could add to woes in the financial industry.
A key element of the new plan is that companies will be invited to join TMC but can make their own final decision. For some Taiwanese DRAM makers, moving ahead alone isn't much of an option due to their indebtedness.
Delays by companies deciding whether or not to join TMC as well as existing contracts and shareholder rights could make the consolidation process move a lot more slowly than the government expects.
"This whole deal will be extremely complicated," said Pai Pei-lin, a vice president at Nanya Technology, one of Taiwan's largest DRAM makers.
Two of Taiwan's biggest DRAM makers hold technology and joint-venture contracts with foreign companies, which would have to be changed or terminated if they were to join TMC.
Nanya currently works with Micron as both a technology and joint venture partner, contracts which would have to be torn up if Nanya ultimately joined TMC and the company chose Elpida as a technology partner. Elpida currently works with Taiwan's Powerchip Semiconductor under a similar arrangement.
Share holders will also have to vote for consolidation. Five of Taiwan's major DRAM manufacturers are listed on stock exchanges.
The main force behind consolidation will be the global recession. DRAM makers in Taiwan have massive loans to pay back, yet the price of their main chip product is currently selling below the cost of production.
"Supply has already been reduced," Pai said. "The problem is demand. Demand is very weak."
