Micron acquires bankrupt Elpida to consolidate DRAM market

Contact: Thejeswi Venkatesh, John Abbott

Micron Technology on Monday announced its largest acquisition – the $2.5bn purchase of Japanese rival Elpida Memory. The announcement comes five months after Elpida filed for bankruptcy, with a whopping $5.6bn of debt on its balance sheet. Under terms of the agreement, Micron will pay $750m for all of Elpida’s equity and $1.75bn over seven years in interest-free installments to the firm’s creditors.

Micron hopes that its consolidation move will help stabilize DRAM supply, while also strengthening its product reach into new areas. In particular, it will be targeting mobile DRAM for smartphones and tablets, which command higher market prices. Elpida has a strong product portfolio in this area and is a key supplier for Apple.

The industry-wide decline in prices due to oversupply has troubled all DRAM players, including Elpida. But Micron’s DRAM unit has fared better than most. While Elpida suffered a $1.2bn loss on $4bn in sales in 2011, Micron’s DRAM unit generated a profit of $290m on $3.2bn in sales.

The combined company will create the second-largest DRAM player, behind only Samsung, but ahead of number three player SK Hynix. By Micron’s calculations, these three vendors will control up to 90% of the $30bn memory chip market. Most of the remaining 10% is held by three smaller Taiwanese players: Nanya Technology (owned by Formosa Plastics), ProMOS Technology and Winbond Electronics. All of these smaller companies are currently losing money. Micron already holds a 40% stake in another struggling player, Inotera Memories, in which Nanya also holds a 26% stake.

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