Elpida's Strategy

At present, the DRAM market is passing through two phases of dramatic change. One is a change in DRAM manufacturing facilities, which are undergoing a generational shift from 200mm wafer to 300mm wafer processing. The other is the driving role mobile phones and digital consumer electronics are now playing in demand for DRAMs. These two changes represent opportunities for Elpida to become the world's #1 DRAM maker and, as described below, to further enhance our business strategy.

The Challenge of Having the World's Lowest Cost Manufacturing

A semiconductor chip is produced using a thin disc of silicon called a wafer. Since the latter half of the 1990s DRAM production has mainly relied on 200mm diameter wafers, but in more recent years there has been a shift to 300mm diameter wafers. Our Hiroshima Plant owns one of the first and largest 300mm wafer fabs in the DRAM industry. The results produced by this fab have been tremendously positive.
Also, we are actively working on research and development of various fundamental technologies

A 300mm fab presents two advantages:

A 300mm wafer offers 2.3 times more surface area than does a 200mm wafer. This larger area allows an increase in the number of dies per wafer and at the same time lowers production costs per chip.
A cutting-edge 300mm fab enables a finer production process while maintaining high yields.
More highly integrated, smaller and lower power products result from this process.

Given these advantages, we have made major capital investments in increasing production capacity at our 300mm fab, or E300. As of September 2006 the E300 fab had a monthly production capacity of 62,000 wafers, one of the largest 300mm wafer processing lines in the global DRAM industry. Currently, the main manufacturing process at the E300 fab is centered on 90nm process technology and 70nm process is starting in the second half of FY2006.

Also, overseas foundries (foundry partners*) with whom we have strategic partnerships are working aggressively to increase their 300mm fab capacity. The synergies we derive from these partnerships provide us with a stronger capability to maintain a steady supply to the market at low cost.

*We have strategic manufacturing partnerships with Powerchip Semiconductor Corporation (PSC) of Taiwan and Semiconductor Manufacturing International Corporation (SMIC) of China. The main focus of these partnerships is procurement of DRAM products for PCs.

Focused on High-Growth Markets

In the past, DRAM demand depended heavily on the personal computer (PC) market. But the increasing digitalization of information has also led to the installation of DRAMs in mobile phones and digital consumer electronics. This new market is now growing faster than the market for DRAMs used in PCs. Moreover, the barriers to enter this market are higher due to the use of more advanced technologies. For example, cellular phones and other mobile devices which are used both indoors and outdoors must be able to operate at a minimal level of power consumption while withstanding extreme changes in temperature. Our DRAM products, which are technically more sophisticated than DRAMs for PCs, can meet these objectives. Also, the support of high integrity engineering is very important when customers are to make the most of DRAMs.

Because we started to focus on these new markets several years ago, we are ahead of the competition in meeting the higher performance needs in the mobile phone and digital consumer electronic markets. Our DRAMs for those markets have gained recognition from customers due to our research & development activities and customer support programs. As a result, those DRAM products are driving our company's expansion and will continue to serve as a vital growth market for our business.