TAIWAN HOPES TO CHOOSE FOREIGN DRAM PARTNER BY THE

C O N F I D E N T I A L AIT TAIPEI 000284 STATE FOR EAP/TC STATE PASS USTR FOR STRATFORD AND ALTBACH, TREASURY FOR OASIA/WINSHIP AND PISA, NSC FOR LOI, COMMERCE FOR 4431/ITA/MAC/AP/OPB/TAIWAN, E.O. 12958: DECL: 03/15/2019 TAGS: ECON ETRD PGOV PREL TW SUBJECT: TAIWAN HOPES TO CHOOSE FOREIGN DRAM PARTNER BY THE END OF MARCH REF: TAIPEI 227 AND PREVIOUS Classified By: Stephen M. Young, AIT Director, for reasons 1.4 (b) and (d). ¶1. (C) SUMMARY. John Hsuan, the IT executive charged with coordinating Taiwan's DRAM sector restructuring plan (reftel),will visit Idaho's Micron Technology and Tokyo-based Elpida within the next week. By the end of March, Hsuan plans to choose either Micron or Elpida, but not both, as foreign partner for the new Taiwan Memory Company (TMC) that will use official support to establish a restructured DRAM industry combining both R&D and production in Taiwan. END SUMMARY. ¶2. (C) In a March 13 meeting with Economic Chief, former United Microelectronics (UMC) Vice Chairman and Taiwan Memory Company coordinator John Hsuan detailed his plans to organize the restructuring of Taiwan's DRAM sector (reftel). Hsuan said he will meet with Micron Technology executives in Boise, Idaho on March 19 as part of a short trip to the U.S. that will also include meetings in San Francisco. After leaving the U.S. at the end of this week, Hsuan will travel to Tokyo for meetings with Elpida executives before returning to Taiwan. Contrary to earlier indications we received from Ministry of Economic Affairs (MOEA) officials, Hsuan indicated that the restructuring plan will include either Micron or Elpida as a partner, but not both companies. Hsuan hopes to choose between the two firms by the end of March, and will then prepare a business plan for the launch of TMC by mid-April. ¶3. (C) Hsuan emphasized that he will develop TMC's business plan with an eye toward creating a company that can compete with industry benchmark Samsung on both cost and technology. In that context, he stressed the importance of access to advanced technology as a key factor in choosing a partner. In his analysis, Taiwan's DRAM sector suffers from chronic overcapacity. At the same time, it relies on what he described as an outmoded business model of marrying U.S. and Japanese technology with Taiwan production capacity. Instead, he emphasized, Taiwan must develop a vertically-integrated DRAM industry in which research and development, as well as actual production, all take place in Taiwan. Hsuan reiterated earlier assurances that the state-owned share of TMC will remain below 50%, and said he has already been approached by private equity firms about investing in the new company. ¶4. (C) In a separate March 13 conversation with Economic Chief, Minister-without-portfolio Chu Yun-peng noted that a Micron representative, joined by Formosa Plastics chief William Wang (NOTE: Formosa Plastics owns Micron partner Nanya Technology),met with Premier Liu Chao-shiuan and other senior economic officials during the week of March 2 to advance Micron's case. Chu, who attended the meeting, said he was impressed with what he described as a generous Micron offer to share technology if it were chosen as TMC's foreign partner. Shih Yen-shiang, the new head of state-owned Chinese Petroleum Corporation (CPC),until recently served as the MOEA Vice Minister responsible for DRAM restructuring. On March 12, Shih told us that although MOEA does not have a firm timetable for setting up TMC and choosing a foreign partner, Hsuan has been given a considerable degree of autonomy in setting his own timeline for establishing the new company and choosing either Elpida or Micron as a partner. ¶5. (C) COMMENT. Hsuan appears intent on adhering to an aggressive timeline for identifying TMC's foreign partner. Micron is advancing its case on the ground on Taiwan, and will be able to do so directly with Hsuan in Boise this week. We will continue to track the case closely, and in the meantime urge a prompt USDOC decision on Micron's pending advocacy request. END COMMENT. YOUNG