Fighting a tide of red ink and market share losses, Micron Technology Inc. last week moved to reinvent itself yet again, taking dramatic steps to become more competitive in two of its sagging businesses: DRAMs and CMOS image sensors.
On the memory front, Micron entered a surprising R&D and DRAM partnership with Taiwanese memory rival Nanya Technology Corp. Formed to share the soaring development and manufacturing costs for DRAMs, the alliance could be a threat to Germany's Qimonda AG, with which Nanya has a DRAM joint venture in Taiwan.
The Boise, Idaho, chip maker also set the stage last week for a possible spinout of its CMOS image sensor business by transforming its sensor business unit into an independent division. That entity, Aptina Imaging, will be free to seek manufacturing alliances with outside foundries. The captive business unit had relied solely on Micron for its manufacturing needs.
The moves are a reversal in course for Micron, which has been hit hard by the memory downturn. The company traditionally had refused to work with outside companies on the DRAM and image sensor fronts. In particular, Micron had steered clear of Taiwanese memory and foundry vendors such as Nanya.
Outside partnerships were "unthinkable" to the "internally focused" Micron of old, said Bob Gove, president of Aptina Imaging. Gove had headed Micron's CMOS image sensor business unit under the former, centralized structure.
But Micron may have had little choice but to change its thinking. Most chip makers today find they must forge alliances to share the skyrocketing costs of R&D and manufacturing. Micron has also suffered a string of quarterly losses and has taken market-share hits in two of its three main businesses (DRAMs and sensors), though it has been gaining share in NAND flash.
In 2007, fabless company OmniVision Inc. became the world's largest CMOS image sensor vendor in terms of sales, displacing perennial leader Micron, according to a new report from Gartner Inc. (Stamford, Conn.).
Doug Freedman, a market analyst with American Technology Research Inc. (San Francisco), said Micron is not in "crisis mode" but is "reengineering" its operations for the long term.
Last year "was definitely a tough year for NAND and DRAM," Mark Durcan, president and chief operating officer of Micron, said in recent interview. Durcan added, however, that he was "more optimistic about DRAM in the short term than NAND in the short term."
Some Micron watchers wonder whether last week's aggressive moves will be followed by more. Years ago, Micron had looked into acquiring Hynix Semiconductor Inc.; last year, there were rumblings about a private-equity buyout of the Boise company. Recent rumors had Micron and Samsung Electronics Co. Ltd. talking about a memory alliance. But a more likely scenario is a merger between Micron and German DRAM maker Qimonda.
Micron officials declined to comment on the speculation.
Last week's "reengineeing" of Micron is not its first such transformation. The company built its business on DRAMs. In a diversification strategy put in place several years ago, it branched out into sensors, NAND flash and specialty memories.
In 2006, the company put a new spin on its diversification plan, forming a joint NAND-manufacturing venture--IM Flash Technologies LLC--with Intel Corp. The same year, Micron made a bold foray into flash cards, USB drives and other end-user markets by acquiring Lexar Media for $688 million.
By diversifying its offerings, Micron sought to untether its fate from the notoriously cyclical DRAM market. Over time, it became a leader in CMOS sensors and a formidable competitor in NAND flash.
But as it put more resources into its new product efforts, Micron "lost market share in DRAMs," said Nam Hyung Kim, an analyst for iSuppli (El Segundo, Calif.). Micron ranked fourth in DRAM sales in 2006 and dropped to fifth place in 2007, according to iSuppli.
The Nanya partnership could put Micron back in the race. The Taiwan-based DRAM supplier is part of the Formosa Plastics Group, the island's largest conglomerate.
The specifics of the Micron-Nanya deal are sketchy; the companies would say only that they will cooperate on DRAM technology at the sub-50-nm node. Still, the implications seem clear to analysts. "Micron is ready to fight again," Kim said. "This is bad news for Samsung and Hynix."
In one scenario, Micron and Nanya could form a joint-manufacturing venture in Nanya's new 300-mm fab in Taiwan, Kim said. In return for sharing "the capex burden with Nanya," Micron might license NAND flash technology to the Taiwanese company, he suggested.
The announcement raised questions about Nanya's own DRAM road map and its partnership with Qimonda. Nanya and Qimonda have a joint manufacturing venture called Inotera Memories Inc. The Taiwan-based venture produces DRAMs using Qimonda's trench-capacitor technology.
Micron, Hynix and Samsung, by contrast, all base their DRAMs on stacked-capacitor cells. The Micron deal thus raises the question of whether Nanya might be moving away from the trench technology.
A Qimonda spokeswoman said last week that its partnership with Nanya remains intact. Calls and e-mails to Nanya were not returned.
Complicating matters, Qimonda itself may be switching camps. The German company recently announced a 4.5F2 cell technology that will let it extend its DRAM process to the 30-nm node. The move also means that Qimonda is "abandoning its trench-capacitor technology in favor of more-conventional, stacked-capacitor technology," Gartner analyst Andrew Norwood wrote in a recent e-mail newsletter.
Jim Handy, an analyst with Objective Analysis, said in a recent report that the "new approach marries Qimonda's unique trench know-how with the stacked capacitors used by most other DRAM makers. The trenches will be used to construct bit lines rather than capacitors, allowing the circuitry to run under the DRAM cell, cutting chip area by about 30 percent compared to the industry-standard 8F2 cell or 15 percent compared to the 6F2 DRAMs made by Micron and Samsung."
A new image
On the sensor side of the business, Gove told EE Times that Aptina will run as an "independent division"--with its own sales, marketing and profit-and-loss functions--to be more flexible and more "responsive to the market." The group employs 650 to 700 people and represented some 11 percent of Micron's total net sales in the first quarter of fiscal 2008. Aptina will continue to use Micron's fabs but could also pursue manufacturing alliances with foundries.
As for whether Micron might spin out the division, Gove said the company is weighing "all sorts of options" but would not elaborate
A spinout "has been in the works," said American Technology Research's Freedman, but "the marketplace is a bit of a mess with the credit issues, making a spinout more work than expected."
Still to be seen is whether Aptina can leverage its new autonomy to become a stronger competitor and make up for lost ground. Gartner analyst Jon Erensen said Micron's sensor unit took a hit last year when Motorola's handset unit, which reportedly uses a Micron image sensor in its Razr phones, suffered its own market-share losses. As Micron lost share in 2007, its main rivals gained ground, despite flat market conditions, Erensen said. "Omni- Vision did really well, particularly with ODMs [original design manufacturers] in China. Samsung continues to do well. Toshiba had a good year."
The uncertain market conditions persist this year, Erensen said, and Aptina also faces new competition in CMOS image sensors from the likes of Hynix and Sony.
Aptina sought to hit the ground running last week by making several product and technology announcements. With its wafer-level camera (WLC) technology, for example, the entire camera system, from the lens element to the processor, can be integrated in one package. Aptina also said it had "reengineered" its 1.75-micron pixel architecture for use in a 9-megapixel image sensor that targets digital still cameras.