Toshiba Corp. is slashing 19,000 jobs and looking for a partner to rescue its ailing DRAM business unit, but disagreements over how to distribute the unit's debts and uncertainty over Hynix Semiconductor Inc.'s future could be holding up a deal.

Four months ago, Toshiba executives estimated the company would make about $500 million profit this fiscal year. They have since revised that figure to $958 million into the red.

Last week, executives gathered in Tokyo, where the company is based, and announced plans to lay off 10 percent of Toshiba's worldwide workforce through fiscal year 2003.

A softening global economy and declining DRAM prices were to blame for Toshiba's financial woes, said Tadashi Okamura, and chief executive officer of Toshiba.

"This is not just a temporary slump," said Okamura, the New York Times reported. "We are entering into a phase of structural depression."

Toshiba is currently in negotiations with one or more DRAM companies to establish a joint venture. "DRAM is most prone to volatility," Okamura said. "We want to reduce volatility by pushing for an alliance."

Munich, Germany-based Infineon Technologies AG confirmed it was in talks with Toshiba but may be waiting to see how its South Korean competitor Hynix weathers its latest financial storm, according to an industry source.

Cash-strapped and debt-burdened Hynix failed to honor $315 million in maturing bonds last week in the hopes of forcing investment trusts to roll over almost $1 billion in debt.

"If Hynix goes under, this deal won't happen," the source said. "If Hynix goes out of business, suddenly tomorrow is a new day."

	Farhad Tabrizi, vice president of worldwide memory marketing for Hynix Semiconductor

"The creditors and the banks know the market is cyclical and this is the bottom of the cycle," Tabrizi said. "If they stick to their commitment in the long run, they are going to see the rewards."

Toshiba's DRAM debt could also be a sticking point for striking a joint venture deal, the industry source said. "Nobody wants to get into any debt now," the source said. "The whole problem is who will pick up the debt and how will you structure something like this? What does Toshiba want to get out of this, other than relief from a money-losing proposition? They are trying to make the parent corporation look better but not without holding onto (their DRAM operations), so if it becomes possible, they can re-enter the business at a later time."

Infineon (nyse: IFX) co-developed trench capacitor technology with Toshiba and IBM Corp. in the 1990s and has been recently working with Toshiba on ferroelectric RAM (FRAM). Infineon and Toshiba's similar process technology and existing cross-licensing deals would make the two companies a good fit, analysts and competitors said.

"In order to be a major DRAM player, you have to increase capacity and reduce R&D as much as possible," Tabrizi said. "Infineon and Toshiba together probably could have the No. 5 place in terms of market share. It would give them the scale to do more cost-effective production."

Toshiba has also approached Samsung Electronics Industries Co. Ltd. with an offer, according to a report from Reuters. Toshiba's flash, direct Rambus DRAM (RDRAM) for the PlayStation 2 and fast-cycle RAM (FCRAM) memory lines would round out Samsung's arsenal, analysts said. Samsung could also be interested in Toshiba's trench capacitor technology, but even a joint venture agreement with Toshiba could leave Samsung open to royalty claims from Infineon and IBM (nyse: IBM).

Predictions of consolidation in the industry have been swirling around since early this year when DRAM prices figuratively dropped off a cliff. If demand does not pick up, more dropouts are inevitable, said Victor de Dios, president of de Dios & Associates, Newark, Calif.

"This quarter is probably one of the worst in the history of DRAM, in terms of losses and cash depletion," de Dios said. "If prices don't improve in the fourth quarter, then that could really hurt and could lead to some serious decision making, even among the largest DRAM manufacturers."

Other analysts agreed.

"DRAM pricing is almost unsustainable," said Jim Cantore, semiconductor program manager at IDC, Framingham, Mass. "All the manufacturers are shipping DRAM below manufacturing costs. That is a very scary situation. The more they ship, the more they lose. If you are losing money at the poker table and somebody gives you more money, are you just going to stay at the table and keep losing, or are you going to walk away?"

Toshiba is one of the latest Japanese technology companies to announce mass layoffs. Fujitsu, NEC and most recently Hitachi have also revealed plans to discharge thousands of workers each. Cantore said he interpreted the round of layoffs as a sign the semiconductor industry had hit the bottom of the cycle.

"When I look at all the cycles, the time when you see companies going out of business or reducing their exposure, or having really big restructuring, you know the bottom is not far away," he said.

"That's the kind of behavior I expect and have seen at the bottom of the other DRAM cycles," Cantore said. "The bottom is very close at hand. Now we will probably see a slow and halting u-shaped recovery."