AUSTIN, Texas DRAM spot market prices dropped by 5 percent early Tuesday (April 30), following the decision by Hynix Semiconductor Inc.'s board of directors to reject a proposed merger with Micron Technology Inc. (Boise, Idaho).
The 10-member Hynix board unanimously rejected the terms of a memorandum of understanding that would have merged debt-laden Hynix with Micron to create the world's largest memory chip supplier.
Richard Gordon, a Boston-based DRAM analyst with Gartner Dataquest, said spot pricing for a standard 128-Mbit synchronous DRAM was off 5 percent to $3.40 per device according to a survey done Tuesday of European spot market traders.
DRAM contract prices have been weakening in the second quarter due to seasonal factors, following strong pricing during the PC holiday selling season. Contract prices were in the $4 to $5 range during the month of April but have started downward again, according to Dataquest.
Reuters reported that Hynix's creditors are expected to change $2.34 billion in convertible bonds into equity, giving them enough power to remove the company's board of directors.
Gordon speculated that a series of reactions to the Hynix board's decision, which he called "weird," could undermine DRAM prices in the near term.
Hynix itself could "bomb" DRAM prices in order to gain market share and create a higher cash flow for the company, which owes creditors about $6 billion.
Micron could react to that by pulling down DRAM prices to a point that Hynix could not match, based on its higher cost structure due to older linewidths and larger die sizes. Micron and other DRAM vendors may seek to drive Hynix into receivership, forcing the consolidation that the industry had expected would happen with the Micron-Hynix merger.
"This is either a ploy by the 10 members of the Hynix board, trying to force better terms from Micron, or it is extremely stupid. Unless the memory market recovers significantly, Hynix is in trouble. Sooner or later, with the level of debt facing Hynix, it is going to die a natural death. Only those with deep pockets are going to survive in this industry," Gordon said.
The decision does not protect the Hynix shareholders, who were not given the option to vote on the proposed merger as would be customary according to U.S. and European securities regulations. If Hynix is forced into receivership, Micron and others could buy the assets at fire sale prices. Those funds would go to the creditors, which approved the merger and would have first claim on the sale of assets. Shareholders would end up holding the bag, Gordon said.
Efforts to contact Micron officials Tuesday morning were not successful.
The company issued a statement saying it had received notification from the Hynix board, and that the memorandum of understanding signed by Micron, Hynix, and the Hynix creditors' council "did not become effective" by the deadline of 6 p.m. Korea time on April 30.