TAIPEI, Taiwan More details emerged Friday (Dec. 28) on the talks between Micron Technology Inc. and Hynix Semiconductor Inc., indicating that the Boise-based memory chip maker is seeking a formal merger instead of a "strategic alliance" with debt-laden Hynix.
According to Korean-based Hynix, two scenarios are under consideration as a basis for the arrangement, both of which seem to put Micron in charge. Either the companies would merge their entire semiconductor operations or they would only merge the DRAM operations with Hynix suggesting that Micron take a controlling stake in Hynix's nonmemory operations to "nurture" them, a spokeswoman said. Those operations would include Hynix's foundry and auto chips businesses; the company has already sold its liquid-crystal display unit and is off-loading its mobile phone unit.
Micron made the proposals during a negotiating session last week in the United States, attended by Hynix President Park Chong-sup. Park returned to Korea on Tuesday (Dec. 25) and reported the substance of the talks to a committee set up by mostly state-controlled creditors to restructure Hynix, which is sinking under the burden of $6 billion in debt and a weak chip market. Park said he believes a memorandum of understanding will be signed in January.
Micron officials are expected to return to Korea within weeks and propose one of the two options. "If Micron wants a merger of memory chip operations only, it is expected to propose forming a strategic alliance in the nonmemory sector by swapping stocks," according to a statement by the committee. The committee will also draft proposals for the meeting.
A combined Micron-Hynix would control 22 fabs 16 of which are DRAM plants and control nearly 40 percent of the market, beating out the current market leader, Samsung Electronics, according to International Data Corp. (IDC). Samsung runs six DRAM fabs.
From a supplier's point of view, such a merger could go a long way toward stabilizing prices for industry-standard 128-Mbit chips, which have remained below cost for most of this year. Yet until now, the two companies were believed to be focusing on forming a strategic alliance, in which Micron might exchange shares with Hynix in return for limited control over the company's capacity.
Analysts see little benefit for Micron in such a deal, however. Moreover, they have been extremely skeptical that a straight-up merger could happen either, especially if Micron CEO Steve Appleton thought his company would have to take on a considerable amount of debt as Hynix did when it merged with LG Semicon three years ago.
On December 18 Micron said it would buy up Toshiba's ailing DRAM operations, allowing the Japanese chip maker to completely exit the commodity DRAM business. The tentative deal, which accounts for less than 2 percent of the world's capacity, turns over Toshiba's Dominion Semiconductor fab in Manassas, Va., to Micron for an undisclosed sum.
Analysts speculated that the deal may have weakened Hynix's position in the negotiations. But at the time, Shin Kook-Hwan, the chief official of Hynix's creditor restructuring board, said the Toshiba-Micron deal wouldn't have a "major impact" on the discussions. "As far as the business talks are concerned, you'd better not jump to any conclusions," he said.
Nevertheless, attention once again focused on whether Micron simply wanted to pick up Hynix's only U.S.-based fab (Eugene, Ore.) on the cheap. The facility was recently refitted to process wafers using 0.15-micron technology.
Now that Hynix has confirmed that a full-scale merger is the target, questions will be raised about the disposition of Hynix's massive debt, the upgrading of some of its more efficient fabs and the closure of its inefficient ones. In addition, Hynix's unionized labor force will need to be deftly handled.
When the companies surprised the industry in early December by disclosing talks, these were the tangled issues cited again and again by industry watchers. "A merger is very doubtful because both companies stand to lose more than they gain," wrote IDC researchers.