Intel Corp. continues to act as an investment banker for the DRAM industry, last week spending $450 million to gain a 5.3% equity stake in Micron Technology Inc.
The cash infusion, which bought Intel 33.9 million shares of common stock, was a boost for Micron and will fuel the Boise, Idaho, chipmaker's DDR2 SDRAM and 300mm-wafer production plans. Intel, for its part, took the latest in a growing string of cash positions aimed at ensuring the generally unprofitable DRAM industry is able to continue supplying leading-edge memory chips to support Intel processors.
Clark Westmont, semiconductor analyst for Smith Barney based in San Francisco, said the $450 million investment increases Micron's cash level to about $1.4 billion, "enabling the company to fund its roughly $1.1 billion capex for fiscal 2004, despite the likelihood of burning cash for the next several quarters.
"This doesn't change the size of Micron's capital expenditure plan, which is up slightly from $1 billion in fiscal 2003," Westmont said. "It also means that Micron will probably not need to tap the capital markets anytime soon."
In two separate deals this summer, Intel, Santa Clara, Calif., invested a total of $123 million in Elpida Memory Inc. to help that company's DDR2 ramp and 300mm-wafer plant expansion in Hiroshima, Japan.
An Intel spokesman said the investments were meant "to make sure that memory suppliers continue to build products to keep pace with our memory roadmap." Analysts agreed, noting that the investments are a strategic move akin to offering DRAM insurance.
"Intel is making sure there will be memory compatible with the new chipsets that will be launched in Q2 '04," said Matthew Godfrey, an analyst with Semico Research Corp., Phoenix. "Intel's investments can be seen as helping the DRAM vendors reduce their DDR2 price premiums to ensure that Intel's DDR2-enabled chipsets will be adopted quickly. A high premium will prolong the adoption rate of a technology that Intel has put its full backing behind."
The latest Intel investment carries with it a series of milestones for DDR2 production and the addition of 300mm-wafer capacity through 2005. If Micron fails to achieve these milestones and its stock price is then below the Intel purchase price, Micron would be obligated to pay Intel an amount not to exceed $135 million, according to a footnote in Micron's year-end financial statement released last week. Much of the repayment, however, could take the form of additional stock.
This is the second time Intel has invested in Micron, having bought $500 million in stock in 1998. The microprocessor titan made an unspecified windfall when it sold its Micron shares during the bull market that extended through 2000.
Intel has invested in other DRAM producers over the years, including $100 million in Samsung Electronics Co. Ltd. in 1999 to help finance the purchase of high-speed testers for Rambus DRAM. The same year, Intel invested $100 million in Infineon Technologies A.G. to help the company ramp up a 300mm-wafer fab in Dresden, Germany.
The $450 million Micron infusion helped the memory-IC maker weather a $123 million fiscal fourth quarter net loss, which was less than the $214.9 million loss it reported in the previous fiscal quarter and the $586.5 million loss for the same period a year ago. For the year ended Aug. 28, 2003, Micron posted a net loss of $1.27 billion, compared with a $907 million loss in fiscal 2002.
Sales in the fiscal fourth quarter totaled $888.5 million, up 21% from $732.7 million in the preceding quarter, and $748 million in the year-ago quarter. Sales for the fiscal year were $3.09 billion, up from $2.7 billion in 2002.