Congress could take the assets of the automakers in peril and place them in the hands of a receiver. The receiver could then cut new deals with workers, dealers, and suppliers. The companies could then enter bankruptcy, where secured and other claimants would fight over the cash.
Congress could take the assets of the automakers in peril and place them in the hands of a receiver. The receiver could then cut new deals with workers, dealers, and suppliers. The companies could then enter bankruptcy, where secured and other claimants would fight over the cash.
Congress could take the assets of the automakers in peril and place them in the hands of a receiver. The receiver could then cut new deals with workers, dealers, and suppliers. The companies could then enter bankruptcy, where secured and other claimants would fight over the cash.
method has been used when an immi- nent threat to or need for land requires CHIPMAKERS quicker action than would be possible if compensation had to be determined first. The underlying principle applies to the auto crisis. ON THE EDGE To stabilize a vital sector of the Awash in inventory, global companies are in economy, Congress could take the deep trouble—and some are seeking bailouts assets of the automakers in peril and place them immediately in the hands of a receiver who would then cut new deals with workers, dealers, and suppliers. Eventually, the receiver (who By Bruce Elnhorn The situation is "desper- might be the proposed "car czar") HONGKONG ate," says Daniel Heyler, could, on behalf of the government, Overcapacity. Looming head of global semicon- sell the new entity in the marketplace, bankruptcies. Government ductor research for Merrill as is, or with a continuing government bailouts. The U.S. automobile indus- Lynch in Hong Kong. subsidy. try? No, this is the global semiconduc- The semiconductor tor industry, producers of the chips that industry has always been DIVIDING THE MONEY power everything in today's economy cyclical, and if these were The "takings" legislation would from cell phones to smart infrastruc- normal times there would provide for a post -confiscation ture. While so much attention has been be a brutal shakeout with judicial hearing, where a court would focused on American automakers, the the weakest players shut - determine the value of the assets the convulsions in the chips business may ting their doors or selling government seized. That amount have just as broad implications and out. But this downturn would be transferred to the corporate possibly more strategic significance for looks different from those shells of the former automakers. Or, countries around the world. of the past. Chip produc - if a court ordered, part of the pay- In recent years, Intel, Samsung, and tion is more global than ment could go to others whose rights many lesser-known companies have ever before, with many were compromised by the seizure. pumped huge amounts of money into of the largest facilities The companies could then enter new production facilities. They saw in Asia. Many govern- bankruptcy, where secured and other rich opportunities in making chips for ments see semiconductor claimants would fight over the cash. the growing crop of digital devices, production as strategically The bankruptcy code is well suited to from iPhones and BlackBerrys to elec- important to their economies. So some officiate in a contest for limited assets. tric utility monitoring systems. But governments are providing financial This contest would be separate from now as the worldwide economy slows, support to local companies. This will auto production, which would not be demand for those chips has fallen off a mean lower prices for chip custom- disrupted in the imbroglio. cliff. Companies that sank billions into ers, but it could cause serious pain for A legislative taking wouldn't be a new factories are running them at half chip companies that compete without panacea. Renegotiation with needed capacity or less, and losing a bundle. government support. "The last thing workers and dealers, among others, you want to see is governments rescu- is an inevitable cost of continuing ing less-competitive companies," says to make cars. However, the unions BIG SPENDERS Avi Cohen, head of research at Avian would no longer cling to the hope of Securities in Boston. "The supply preserving their current contracts. Capital expenditures by world's never goes away." Unwanted dealers could not hold up memory-chip producers Overcapacity is a growing problem. , „ BILLIONS OF DOLLARS the redeployment of assets. And there On Dec. 16, the market research firm would be no uncertainty over whether iSuppli issued an alert to clients that unsatisfied secured creditors might semiconductor inventories are likely force liquidation. Quick action might to balloon to $10.2 billion at the end of preserve a viable portion of the U. S. December, up from $3.8 billion at the auto industry, i BW i end of September. The government bailouts began this Adler, the Charles Seligson Professor month. China's biggest chipmaker, at New York University School of Law, '03 '04 '05 Semiconductor Manufacturing Inter- teaches and writes about bankruptcy Data: Merrill Lynch national, cut a deal to receive $170 mil- and corporate finance. lion from a state-owned company. In
BUSINESSWEEK I DECEMBER 29, 2008 I JANUARY 5, 2009
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products. Cheap chips, for example,
could also make it easy for anyone to store an entire photo collection on a mobile phone. Semiconductor companies in the U.S. are a bit more insulated than those in Asia. Intel, the world's largest chip company by revenue, has been hit by the economic downturn, but it benefits from its focus on making microprocessors, the brains of PCs. Its only real competition in that business is Advanced Micro Devices, and AMD has struggled to keep up because it can't match Intel's heavy investments in the latest production technology. Texas Instruments and Qualcomm don't compete in the commodity memory business, either. They pro - duce chips that let cell phones make Germany, the state of Saxony offered wireless calls, among other products. Qimonda $206 million in support, The turmoil in the global chips although it's not clear the pact will be industry is likely to last a while. Still, finalized. And in Korea, a consortium consolidation looks inevitable, espe- of state - owned and private banks are cially among the memory chip makers. expected to provide Hynix Semicon- In the meantime, if Taiwan, Germany, ductor with about $600 million in new and others keep givingfinancialsup- loans. "One country starts considering port to local companies, chipmakers a bailout, and then it kind of spreads," elsewhere will be faced with a tough says Christian Heidarson, senior decision: They can either compete on research analyst with Gartner in Hong an uneven playingfieldor cede the ter- Kong. "Nobody wants to see their in- rain. "There are no choices that do not dustry being lost to another country." involve significant pain at this point," says Dale Ford, senior vice-president CONSOLIDATION INEVITABLE? The stocks of memory chip makers atiSuppli. IBWI Taiwan may have the most at stake. have already been pounded by the twin -With Arik Hesseldahl in New York, The country has fostered a large and concerns of the economic downturn Cliff Edwards in San Francisco, and Jack lucrative chip industry, with gi- and government bailouts. Singapore's Ewing in Frankfurt ants such as Taiwan Semiconductor Chartered Semiconductor Manufac- Manufacturing doing cutting-edge turing, Germany's Infineon Technolo- gies, and Boise (Idaho)-based Micron — work on par with Intel and IBM. Now, 1 however, several of the country's larg- Technology have all seen their shares Business Exchange I est chipmakers are in serious trouble. tumble at least 75% this year. [ A handful of companies that make Competition is most brutal in Read, save, and add content on BW's ' memory chips, which manage data on memory chips because production is new Web 2.0 topic network PCs and store information on digital standardized and chips are considered commodities. Companies splurged Chips: The New Economics cameras and mobile phones, may go Steep fixed costs are a big 1 out of business without a govern- on new production in recent years, problem for chipmakers. So when ment bailout next year. "It's unbear- investing a total of $33 billion in 2007. demand falls, many keep cranking able," says Frank Huang, chairman of Because 70% of their costs are fixed, out chips to cover their overhead. there's little reason to cut back produc- In "The New Economics of Powerchip Semiconductor, Taiwan's Semiconductor Manufacturing," largest memory manufacturer. "Right tion. So even as demand has fallen, the Harvard's Clayton Christensen now no [chip] company can make a big Asian memory companies continue looks at managing the pressures. profit. The government must support to flood the market. "That's why you this industry." On Dec. 16, Economic are seeing rock-bottom prices," says To read Christensen's article, go to
semiconductors/reference/ said the government is considering aid For customers, plummeting memory I for chip companies. prices may lead to more innovative
DECEMBER 29, 2008 I JANUARY 5, 2009 I BUSINESSWEEK