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Source: Global Times Global Times

Inspur Group struggles to compete with foreign technology powerhouses

Published: 23 Aug 2009 18:02:01 PST

By Wang Xinyuan

The price of dynamic random access memory (DRAM) started to rebound last week and the trend is likely to continue, according to inSpectrum, a DRAM information provider.

That makes the recent acquisition of German Qimonda Xi'an R&D Center by Shandong-based Inspur Group, a leading Chinese IT firm, look promising.

The price of 1Gb 800MHz chips increased by 6 percent in the last two weeks, hitting $1.51 Friday, up 25.8 percent compared with the price when German DRAM chip maker Qimonda declared bankruptcy in late January.

Inspur acquired Qimonda's Xi'an center for 30 million yuan ($4.39 million).

After accounting for intangible assets and equipment, the total value of this acquisition is estimated to be worth well over 100 million yuan ($14.64 million), according to the Beijing Youth Daily.

The Xi'an R&D center was responsible for the entire design and development process of Qimonda's computer and consumer DRAM products.

"Inspur Group will integrate this center into its existing design center in Shandong to create a design and development platform for the high-performance server and massive storage units," Sun Pishu, Inspur Group chairman, told the Global Times.

The acquisition is beneficial to the China DRAM sector, Mo Dakang, a consultant with Anbound Consulting, told the Global Times.

The 12-inch chips have two main applications: CPU processing, a market that manufacturers such as Intel and AMD monopolize, and DRAM.

Currently, foreign chip makers possess cutting-edge DRAM technology, Mo said.

China so far has no technological development capability for 12-inch DRAM wafers.

Even though Taiwan ranks No.1 in producing DRAM in terms of quantity, Taiwanese manufacturers rely on Japanese technology to produce it.

Core technology cannot be attained even through technological cooperation, he said.

The DRAM sector is known for fierce competition. “Qimonda went bankrupt because it lagged behind in leading technology,” Mo noted.

Mo doubts that Inspur will be able to catch up to the leading technology in time to compete.

There were about 80 Chinese and 10 German technological staff in the Xi'an center.

Many German scientists left following the acquisition, taking with them their expertise, Mo said.

The selling price recently reached $1.50 for 1Gb DRAM, the break even point at which the supplier's cash flow turns positive.

But before that, many manufacturers incurred losses making the chips, he noted.

The Semiconductor Manufacturing International Corporation (SMIC), a Shanghai-based Chinese IT producer, signed an agreement with Qimonda in 2007 to work on the production of standard memory chips.

SMIC left the DRAM business in the first quarter of 2008, when weak global demand led to a price drop, costing producers and developers large amounts of money.

Making chips for DRAM IC requires a large initial investment in research and development as well as expensive efforts to recruit and retain experienced professionals.

An annual salary of $1 million for a tech developer is not abnormal, according to Mo. “Can Inspur afford to hire enough experienced scientists to compete?”

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