Sunday night, memory-chip maker Micron announced that it was in talks with Korea's
, formerly a unit of
. The pair did not specify whether they were talking merger or joint venture, but investors took heart in shrewd Micron's ability to get a good price on formidable memory-chip assets. Micron was up $1.40 to $28.56 in Monday trading.
Micron is the world's second-largest maker of
DRAM, a type of memory chip, followed by Hynix in the No. 3 spot. Working together, the two would have approximately 40% market share, surpassing the 25% stake held by Korea's
. What remains to be seen is how, if possible, the fiscally conservative Micron would collaborate with financially troubled Hynix, as the potential partner faces mounting concerns about its health.
Hynix has pursued several routes to raise money in 2001, including a $790 million asset selloff plan and a June stock offering in which the company sold 560 million shares of its stock on the market to raise $1.2 billion. As part of a restructuring, the company has refocused its efforts on its semiconductor business and improved financials.
"Micron wants market share. Hynix has assets and market share, but what they need is technology," explains Needham analyst Dan Scovel. "Hynix can restructure their debt so their financial situation is stabilized, in theory, but they'll need to throw a lot of money around to keep up with the Joneses, and it's not my belief that they can do that."
Expect Micron to swap the technology that Hynix can't afford in return for DRAM assets. Onlookers says the deal has the potential to mirror Micron's purchase of
DRAM operations in 1998 when Micron picked up fabs in Italy, Texas, and Singapore, as well as TI's share of joint ventures in Singapore and Japan, for $800 million in Micron stock. Micron is respected for driving a hard bargain in that deal, and Wall Street expects it to do the same with Hynix.
All of which could eventually give Micron more leverage to influence pricing and production. "Would 40% share be dominant enough to shift market power in the supplier's direction?" puzzles Scovel, who explains that, historically, no member of the DRAM-producing ranks has had enough market share to civilize the segment. He estimates that it took 10 DRAM names to account for 80% of the market in the past, a number that's slimmed down to five or six.
Nonetheless, leader Samsung has not been able to avoid a treacherous falloff in DRAM prices. Perhaps a beefed-up Micron could impose leadership. "In the near term, probably not, but it would be a lot better than 10 companies it was a few years ago," Scovel says.
Then again, Wall Street doesn't see the pairing as a sure thing. Micron will want Hynix to make concessions regarding its debt load, its DRAM output and its facilities, including a Eugene, Ore., fab. It's going to take a lot of giving for Hynix to get Micron to seal the deal.