Where next for Micron?
Micron Technology's recent acquisition of bankrupt Elpida is not without risk. What could the bold move mean for Micron and the rest of the memory chip industry?
Earlier this month, US memory manufacturer, Micron Technology, bought Japan-based rival, Elpida Memory, ending four months of industry speculation.
Proponents of the move argue the combined companies put Micron in a stronger position in the memory market, while consolidation will ease the oversupply problem that has plagued Asian suppliers of computer memory chips for years.
However, other industry players now assert Micron faces a lot challenges when it comes to incorporating its latest purchase into its business.
"Integration could prove challenging, or even messy, if details are not worked out carefully enough," says Mike Howard, senior principal analyst for DRAM and memory at US-based industry analysis company, IHS iSuppli. "Micron's previous acquisitions of speciality memory makers, Numonyx and Inotera, presented unanticipated surprises, and in some ways Micron is still digesting those purchases."
As Howard highlights, the transfer of technology entailed by the Elpida deal "“ after all is said and done, size-wise, the competitor was on the same scale as Micron "“ may prove costly and consuming.
"[This] is unlikely to hasten the rest of the complicated integration process that Micron still needs to do with earlier buyouts," he adds.
Still, as Micron chief executive, Mark Durcan, has pointed out, the new capacity gained from Elpida costs less than a third of what it would take to build operations from scratch. And crucially, the $2.5 billion acquisition could boost Micron's production of dynamic random access memory, the most common type of memory in personal computers, by about 130 percent.
Indeed, the move makes the memory manufacturer the second biggest DRAM"ˆproducer, by revenue, behind only Korea-based chip giant Samsung Electronics, and leaving SK Hynix, also from Korea, trailing in third place. So what happens next?
Micron's deal, expected to close on the first half of next year, comes at a time when many DRAM manufacturers are struggling to emerge from profit losses following weak chip prices. This leaves some industry analysts speculating that Micron will now convert some of Elpida's DRAM facilities to produce NAND flash memory chips instead.
Both chips are used in mobile devices, such as smartphones, and this move would help to relieve the glut of DRAM chips that currently exists.
And while good news, overall, for the Korean contingent, the nation's consolidation may spell bad news for Taiwan-based manufacturers, such as Nanya Technology and Winbond Electronics, already tackling tough times. These industry players have few advantages over the larger Korean counterparts, so more acquisitions and mergers in Taiwan's DRAM industry could ensue.
Looking beyond Elpida, in a separate but related deal, Micron also bought out Taiwan-based Powerchip Semiconductor's minority interest in DRAM maker Rexchip Electronic for over £330 million. Elpida already had a two-thirds share in Rexchip, and this move has given Micron a hefty 89% share in Rexchip.
Crucially, Rexchip had built a cost competitive, leading-edge manufacturing plant in Taiwan, and clearly, this facility has formed an attractive piece to the entire Elpida pie.
Keeping the memories
In 2002, Micron made a bid to acquire Hynix for some $4 billion. Talks failed after Hynix's creditors complained the Korean company would fall into foreign hands.
In contrast, the Elpida acquisition is set for success, and as the deal was announced, Micron, now the last US manufacturer of DRAM chips, saw its shares gain 3.8% on the Nasdaq Stock Market, after falling by 15% over the past year.
As Micron's Mark Durcan puts it: ""We are creating the industry-leading pure-play memory company."
And as IHS iSuppli's Howard adds: "The consolidation of the DRAM market set off by Elpida's bankruptcy, and subsequent purchase by Micron is bringing new stability to DRAM pricing.
After years of struggling, this must spell good news for memory chip manufacturing in the West, and the rest of the world.
