AUSTIN, Texas It's been awhile since North America sat atop the market-share heap in commodity memories.
Micron Technology, Inc. made it to that perch Monday with double-barreled announcements, agreeing to acquire the memory unit of Hynix Semiconductor Inc. for at least $3.4 billion in stock and finalizing a deal to acquire Toshiba Corp.'s commodity DRAM business.
The two deals will put an American semiconductor company in the No. 1 position in a revamped DRAM industry that many had expected to be taken over by Asian rivals.
Hynix the former semiconductor operation of the huge Hyundai chaebols emerged from its takeover of rival LG Semicon and the Asian financial crisis crippled with debt, while Japan-based companies were hobbled by a reluctance to invest in the brutally cyclical DRAM sector. Meanwhile, Micron's single-minded focus on memories flip-flopped any expectations that memory production would move to the Far East. Instead, power in the DRAM industry has shifted West, to a company founded on profits from the Idaho potato fields.
After the dust settles, Micron, Samsung Electronics, and Infineon Technologies become the Big Three in the memory business, with Japan's Elpida the joint venture between NEC Corp. and Hitachi, Ltd. as a distant fourth.
On Monday, after nearly a year of rumors and negotiations, Micron announced that it would use 108.6 million of its shares to pay off Hynix's creditors. The shares are worth about $3.2 billion at last Friday's stock valuation, but Reuters reported that the value of the shares could swell to $4 billion if Micron's stock increases in value. In addition, Micron will invest $200 million in Hynix's non-memory semiconductor business, acquiring 15 percent of the non-memory operation.
The Micron deal with Toshiba was far less costly. Micron acquires Dominion
Semiconductor, a subsidiary of Toshiba located 35 miles west of Washington, D.C. where about 1,000 people are employed, for $250 million in cash and 1.5 million shares of Micron stock. Toshiba which was the leading DRAM manufacturer as recently as 1990 will focus its energies on flash and specialty DRAMs, such as the Fast Cycle and Rambus DRAMs.
"The utilization of the Dominion DRAM operations should enable Micron to further leverage our highly-efficient manufacturing model and continue to reduce our cost per wafer," said Steve Appleton, who is Micron's chairman, chief executive and president. "We intend to begin transferring our 130-nm (0.13 micron) manufacturing and process technologies into the Dominion facility as soon as possible and expect the transfer to be completed by the end of 2002."
Sherry Garber, memory analyst at Semico Research (Phoenix) said Micron became a major force in the DRAM industry because of its own singular focus on memories, and a "frugal" culture that kept production costs low. In 1990, Micron was ranked as the 11th largest DRAM vendor, and Hynix was 16th. By 1999, after the 1998 acquisition of the far-flung DRAM operations of Texas Instruments, Micron had become the third-largest DRAM producer, after Samsung and Hynix.
In 2001, Semico Research ranked Samsung as the largest DRAM producer, with $3.032 billion in revenues. Micron was second with $2.210 billion, Hynix was third with $1.757 billion, and Infineon was fourth with $1.225 billion.
Will Samsung react?
"It is going to take nine months to a year for Micron to effectively start using the Hynix fabs. One big question facing Micron is the labor issue: how many Korean workers Micron has committed to employing," said Garber, noting the sometimes violent turn that labor conflicts have taken in Korea.
Appleton and the other Micron managers learned a lot from the 1998 TI DRAM acquisition experience, she said, predicting that Micron would be able to handle the debt burden from the Hynix acquisition.
While Micron's attention has remained on memories, Toshiba's executives grew reluctant in recent years to invest in DRAMs.
The DRAM industry had a highly profitable period from 1999-2000, but the three years before then, and 2001, were difficult. DRAM prices are healthy now, but going forward, companies that expect to remain in the DRAM business will need to invest from $2 billion to $3 billion for each 300-mm fab, she said.
Investing in the right amount of capacity, at the right time, is crucial to keeping costs low in commodity IC production. Bill McClean, principal analyst at IC Insights, noted that in 1985 four of the top five DRAM vendors were based in Japan, largely because of high levels of investments in new fabs in 1983 and 1984. McClean looked at capital investments last year and found that not one Japan-based company was in the top 10, which he said may mean that Japan-based companies may continue to recede in terms of mass-production capabilities.
"The 'big name' DRAM suppliers from yesteryearNEC, Hitachi, Toshiba, and Mitsubishihave essentially abandoned the DRAM market in search of more profitable and less volatile IC markets," McClean noted in a recent report.
Garber said Samsung may react to Micron's acquisition with some moves of its own to bolster its sales and keep it in the No. 1 position. But whatever Samsung decides to do, competition will remain intense even after the most recent consolidation.
"Samsung, Micron and Infineon are all very, very competitive companies, and they will remain so," Garber said.