July 2, 2012 / 11:06 AM / 6 years ago

UPDATE 5-Micron to buy Japanese chip maker Elpida

* Micron to pay about $750 mln for Elpida equity
    * U.S. firm will also pay Elpida creditors $1.75 bln
    * Deal will bring about 24 pct of global DRAM market
    * Micron also to buy stake in Rexchip

    By Noel Randewich and Sinead Carew
    July 2 (Reuters) - Micron Technology Inc will buy
failed Japanese chipmaker Elpida Memory Inc for about
$750 million in cash, pushing Micron into second place behind
market leader Samsung Electronics in the global
market for DRAM memory chips.
    Micron shares rose more than 5 percent after the deal was
    The acquisition will give Micron chip manufacturing assets
at a heavily discounted price and boost its cash flow.
    Low prices and steadily rising investment costs to implement
new technologies have driven consolidation in the highly
competitive and cyclical memory chip industry. 
    Buying Elpida doubles Micron's share in the market for DRAM,
or dynamic random-access memory, chips, widely used in personal
computers. The deal puts it in a stronger position to keep up
with industry leader Samsung.
    Elpida, an Apple Inc supplier, makes chips used in
smartphones and tablets as well as computers.
    "We've always had deep requirements for additional capacity
and this puts us in great shape to respond to that," Micron
President Mark Adams told Reuters in a telephone interview.
"This is a big step in providing some stability to our
    Along with the cash payment, Micron will also pay Elpida
creditors about $1.75 billion in annual installments through
2019 and pay $334 million for a 24 percent stake in Taiwan-based
Rexchip Electronics Corp from Powerchip Technology
    Elpida owns about 65 percent of Rexchip, which owns a DRAM
factory in Taiwan and an assembly and test facility in Akita,
    Stifel analyst Kevin Cassidy said the deal brings Micron
manufacturing assets, including Elpida's DRAM factory in
Hiroshima, Japan, at a discount of billions of dollars.
    "We estimate this manufacturing capability would cost
roughly $6 billion- $8 billion if built new," Cassidy said.
    Adams said building the equivalent capacity would cost the
company about three times as much as it is paying for Elpida.
    Micron said the acquisition would boost its earnings within
12 months.
    Elpida has been looking for an investor to sponsor its
restructuring after tough market conditions and global
competition drove it to file for bankruptcy protection in
February, with 448 billion yen ($5.6 billion) in liabilities.
    It was Japan's largest bankruptcy of a manufacturer.
    A growing preference for tablets has dampened demand for
memory chips used in personal computers, and growing costs to
implement new technology have added to pressure faced by DRAM
    "This probably means we'll see some good supply-demand
balance. Fewer players would help the balance, meaning a healthy
price environment going forward," said Monika Garg, an analyst
at Pacific Crest.
    The future annual payments by Micron will be paid from cash
flow generated by foundry services provided by Elpida, the
companies said.
    Micron, which has posted losses in the past four quarters,
had been in exclusive talks for several weeks to buy Elpida.
    Micron shares jumped 5.1 percent at $6.64.
    U.S. private equity firm TPG Capital and China's
Hony Capital made a joint offer for Elpida in a final round of
bidding in early May, while South Korea's SK Hynix,
the world's No. 2 global DRAM chipmaker, dropped out of the
    Elpida had a 13.1 percent share of the global market for
DRAM chips, while Micron had an 11.6 percent share, according to
market research firm IHS iSuppli.
    Combining the companies would take their share of the market
above SK Hynix's 23 percent. Market leader Samsung has about a
42.2 percent market share.
    Elpida is a strong producer of mobile DRAM, used in
increasingly popular gadgets like smartphones and tablets.
Micron could also turn Elpida's manufacturing capacity toward
making NAND chips -- also used in portable devices -- a decision
that Adams said will depend on future market conditions. 
    "They have bought ability for increased flexibility on how
they expand future capacity," said RBC Capital Markets analyst
Doug Freedman.
    Yukio Sakamoto, co-trustee of Elpida, said in the statement
that the deal would allow for the stable payment of creditor
claims and was "a strong testament to the value of Elpida's
technologies, products and people."
    The deals need the approval of Elpida's creditors, the Tokyo
District Court and other antitrust agencies.
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