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joshxdr
Maybe Micron's thinking is this: if they don't acquire scale by buying Elpida, ...
ibm221
DRAM and flash will always exists (for a while), the question is if micron's ...
Micron looks like the winner of Elpida sweepstakes
Dylan McGrath
5/4/2012 11:25 AM EDT
And the winner is (drum roll please)....
Micron Technology appears likely to win the Elpida Memory sweepstakes now that SK Hynix has reportedly dropped out of the bidding.
Micron (Boise, Idaho) reportedly bid around $2.5 billion in the final round of bidding, which closed Friday (May 4). Micron also promised to keep Elpida's main fab in Hiroshima and its employees, according to a Reuters report, which cited Japan's public broadcaster NHK. The NHK report apparently did not cite any sources.
With Hynix out, it would appear that only two bidders are left standing for Elpida: Micron and the team of Hony Capital, a Chinese investment firm, teamed with U.S. private equity firm TPG.
Looking back at an analyst roundup we posted last month, most of the analysts that we solicited input from predicted that Micron would likely win the bidding and that Micron had the most to gain from acquiring Elpida.
Mike Howard, a memory analyst at IHS iSuppli, said Micron probably had the most to gain because gaining control of Elpida's production capacity would likely double Micron's DRAM market share to between 20 and 25 percent, allowing it to challenge Hynix for the No. 2 position in DRAM. Howard said Micron would also gain access to Elpida 's mobile DRAM product portfolio, where it has lagged its competition, and added that Micron would probably idle some of Elpida's production capability, thereby benefitting all DRAM companies.
Jim Feldhan and Adrienne Downey of Semico Research wrote, "Micron-Elpida would have more leverage with its customers as well, so prices could stabilize. Finally, faced with even larger competitors than before, the Taiwanese DRAM companies will have more incentive to finally consolidate as well. Eventually the industry will end up with only a handful of players."
And so it would appear that the likely outcome of this extraordinary situation—a bankrupt Japanese firm selling itself to the highest bidder—is at least on its face a happy outcome for the DRAM industry as a whole. Perhaps this is part of the reason Hynix pulled out. Why spend billions when you may benefit almost as much from your competitor laying out that kind of cash?
In some ways, it would be more interesting if the long shot, the team of Hony and TPG, pulled the upset. Micron of course has been entrenched in DRAM for years and it would be interesting to entertain the possibility of a new player. But of course, the entry of new players in DRAM has always been to its detriment. Analysts and others believe that the DRAM industry would actually be better off with fewer players.
Still, a winning bid by Hony, which specializes in the buy-out of China state-owned enterprises and has $6.8 billion in assets under management, could accelerate the technology curve for chip makers in China. If some of Elpida's advanced process technology (the firm started sampling 25-nm DRAMs last year) made its way to Chinese foundries such as SMIC and Grace, it could help make them more competitive. But that's not necessarily in the best interests of the industry as a whole.
A call to action: Readers, what do you see as the upshot for DRAM as a whole if, as it appears, Micron emerges as the winner of the Elpida sweepstakes?
Micron Technology appears likely to win the Elpida Memory sweepstakes now that SK Hynix has reportedly dropped out of the bidding.
Micron (Boise, Idaho) reportedly bid around $2.5 billion in the final round of bidding, which closed Friday (May 4). Micron also promised to keep Elpida's main fab in Hiroshima and its employees, according to a Reuters report, which cited Japan's public broadcaster NHK. The NHK report apparently did not cite any sources.
With Hynix out, it would appear that only two bidders are left standing for Elpida: Micron and the team of Hony Capital, a Chinese investment firm, teamed with U.S. private equity firm TPG.
Looking back at an analyst roundup we posted last month, most of the analysts that we solicited input from predicted that Micron would likely win the bidding and that Micron had the most to gain from acquiring Elpida.
Mike Howard, a memory analyst at IHS iSuppli, said Micron probably had the most to gain because gaining control of Elpida's production capacity would likely double Micron's DRAM market share to between 20 and 25 percent, allowing it to challenge Hynix for the No. 2 position in DRAM. Howard said Micron would also gain access to Elpida 's mobile DRAM product portfolio, where it has lagged its competition, and added that Micron would probably idle some of Elpida's production capability, thereby benefitting all DRAM companies.
Jim Feldhan and Adrienne Downey of Semico Research wrote, "Micron-Elpida would have more leverage with its customers as well, so prices could stabilize. Finally, faced with even larger competitors than before, the Taiwanese DRAM companies will have more incentive to finally consolidate as well. Eventually the industry will end up with only a handful of players."
And so it would appear that the likely outcome of this extraordinary situation—a bankrupt Japanese firm selling itself to the highest bidder—is at least on its face a happy outcome for the DRAM industry as a whole. Perhaps this is part of the reason Hynix pulled out. Why spend billions when you may benefit almost as much from your competitor laying out that kind of cash?
In some ways, it would be more interesting if the long shot, the team of Hony and TPG, pulled the upset. Micron of course has been entrenched in DRAM for years and it would be interesting to entertain the possibility of a new player. But of course, the entry of new players in DRAM has always been to its detriment. Analysts and others believe that the DRAM industry would actually be better off with fewer players.
Still, a winning bid by Hony, which specializes in the buy-out of China state-owned enterprises and has $6.8 billion in assets under management, could accelerate the technology curve for chip makers in China. If some of Elpida's advanced process technology (the firm started sampling 25-nm DRAMs last year) made its way to Chinese foundries such as SMIC and Grace, it could help make them more competitive. But that's not necessarily in the best interests of the industry as a whole.
A call to action: Readers, what do you see as the upshot for DRAM as a whole if, as it appears, Micron emerges as the winner of the Elpida sweepstakes?
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resistion
5/4/2012 3:08 PM EDT
Some of the reasoning appears self-contradictory, like gaining production capacity only to idle it. Micron and Elpida have different technology, so the capacity won't pick up for a while. There is also no government support for a micron-elpida entity through hard times, which micron could better weather without the burden of Elpida. Didn't Micron consolidate its own fabs recently? It is trying to lighten rather than bulk up.
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resistion
5/4/2012 3:16 PM EDT
You could also have the distinct Elpida and Micron product lines cannibalizing each other.
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R0ckstar
5/4/2012 4:01 PM EDT
I think the only winners here will be the Elpida workers still standing. Micron is not even going to use all of the wafer capacity it's paying for, and I don't think whatever modest technology advancement Micron gets from the deal will have proved to be long lived enough to justify the expense after the time & cost associated with assimilating and converting to Elpida technology. This is a break even deal at best for them, and it certainly won't be enough to let the good times roll again in DRAM.
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any1
5/4/2012 5:07 PM EDT
Micron owned a fab in Japan for many years, so it is comfortable running a business there. Will they gain some valuable IP as well in this deal?
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joshxdr
5/4/2012 10:40 PM EDT
Micron has a lot of experience converting purchased fabs to their technology: TI, Toshiba, Inotera. All of these conversions seemed to take a lot of time and effort and expense. These fire sale fab purchases always seems like an incredible deal at the time Micron makes the purchase, and a not-so-good deal a few years later. Micron owned the former KTI fab in Nishiwaki which is now part of Jazz. So they must still have some fab experts in Japan that can help integrate the Elpida fabs.
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SemiJunky
5/5/2012 8:29 AM EDT
There's no need to let the fabs sit idle. Elpida Hiroshama plant can be converted over to make NAND flash chips. Cutting Dram supply which would help stabilize the Dram market. Of course the NAND market would probably be in over supply, but that could lead to a boom in SSD's as prices move lower. Micron also has an R&D fab in Japan(formerly Toshiba). Rexchip can continue making Dram mobile chips keeping Apples business. Micron has been battling these government sponsored Dram semiconductor company for years. Good old fashion American innovation has kept Micron alive. Hynix should of been bankrupt or bought out by Micron by now if it weren't for the unfair government subsidys keeping it going.
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resistion
5/5/2012 7:46 PM EDT
The benefits of fewer DRAM suppliers could have been attained with no bids at all, and that would be no cost to micron.
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resistion
5/5/2012 8:20 PM EDT
Micron doesn't even have 2 billion in cash and had negative earnings the last few quarters. This 2.5 billion bid is fake report from Japanese media I hope. Otherwise, it's desperation on top of no financial control.
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joshxdr
5/5/2012 9:46 PM EDT
Micron doesn't need to have cash on hand to make this transaction. They can hand over some of their stock, or they can get a loan from a bank, or sell bonds. The key question is are Micron shareholders better off in the long run. Based on the mixed experience acquiring Qimonda's share in Inotera, it is a tough call.
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resistion
5/6/2012 4:04 AM EDT
Micron doesn't even take in 2.5 billion in a quarter. This large charge will impact earnings even more negatively.
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SemiJunky
5/6/2012 11:42 AM EDT
Micron has roughly 2 billion in cash and just sold 800 million in bonds so they definately have the cash to buy Elipida. They will most likely keep as much cash on hand as they can and finance the rest. If Hony won the bid, it could be another potential competitor, which could prolong the down cycle. Elpida spent 5 billion on their Hiroshama fab and another 2.5 billion for Rexchip. Buying Elpida will be a burden for Micron for a few quaters, but once things start rolling Micron should start constantly being profitable. With Elpida's extra capacity they finally have the scale to compete with Samsung and Hynix on volume. Both Samsung and Hynix have mentioned converting some dram capacity to over to app processor or something else.Try to name another semiconductor company that has been around this long competing against countries and banks. Once Micron's TSV technology start gaining traction, they will further break away from competitors. Dram prices are already starting to go up slowly. With this increase in revenue, Micron should reach top 5 largest semiconductor company by revenue. Hopefully with increased margin to go with it.
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resistion
5/6/2012 12:17 PM EDT
To complete the picture, we have Micron's 2.3 billion debt (I don't know if this includes the bonds just mentioned) to add to Elpida's 5.6 billion debt, so roughly 8 billion, but taking out the 2.5 billion bid leaves 5.5 billion, which was too hard for Elpida to handle, but maybe Micron will somehow miraculously get through it. If Micron (or Elpida) were a Korean company, no doubt the government would have done something; inappropriate arguably, but something. Hiroshima operating expenses reported by Elpida to be so high, which is why they had to set up Rexchip. I think Micron will end up trying to sell the Hiroshima fab. Who will dare buy then?
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ibm221
5/7/2012 4:18 AM EDT
If micron dare to swallow elpida its fate sealed, at least need 2 years to merge, convert product lines, culture friction will be huge.
It will be teared apart very soon.
what MU doing is trying to harass Hony's effort, raise the price, it will leave in a while as toshiba did.
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palangga
5/8/2012 1:42 PM EDT
DRAM and Flash are reaching the point where shrinking dimensions becomes prohibitively expensive. In the next few years, emerging memories, such as STT, Conductive Bridge, 3D NAND will go into production. Micron will have fabs in place to dedicate to these new memories, while their competitors will have to disrupt their current production to phase them in.
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resistion
5/8/2012 9:09 PM EDT
This is an interesting comment. So Micron has most to gain to exit DRAM and Flash into new memories? It paid so much already to gain share in DRAM and Flash.
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ibm221
5/9/2012 8:19 PM EDT
DRAM and flash will always exists (for a while), the question is if micron's cost structure will be competitive. Hynix walked away since this one ll increase their cost of production.
how can micron pull a magic?
the ironic part is elpida bought qimonda's munich team 2008 and now is their turn to fall apart.
while hynix's wuxi fab saved it after 2004.
is micron getting too smart this time?
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joshxdr
5/10/2012 11:12 PM EDT
Maybe Micron's thinking is this: if they don't acquire scale by buying Elpida, they have 100% chance of being destroyed by Samsung over the long term. If they take a big risk on Elpida, they have a 90% chance or crashing and burning and a 10% chance of surviving with enough scale to beat Samsung at the memory game.
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