With the purchase of Elpida Memory, the third-largest DRAM maker, Micron Technology not only becomes a tier one supplier, it also catapults itself into the mobile space as a supplier to leading smartphone and tablet makers, including Apple.
"It's a significant improvement for [Micron]," said Mike Howard, an analyst for industry research firm IHS iSuppli. "They were a tier-two player when it came to mobile. They had a tough time getting designed [into products]."
Elpida is a major supplier of DRAM to Apple, the world's largest consumer of semiconductor technology. Micron's purchase of Elpida will help to stabilize Elpida financially and will likely lead to its shoring up that component-supplier relationship.
Elpida mainly manufactures DRAM for smartphones and tablets, while Micron is a provider of enterprise-class DRAM and NAND flash for networking, servers and storage systems.
Micron still has major competitors in the DRAM space in Samsung and Hynix. Samsung has a 40% market share and Hynix has about 23% , according to IHS iSuppli. Once the acquisition deal closes, Micron will leap from a 12% to 13% DRAM market share to about 22% or 23%, Howard said.
Micron made a failed attempt to acquire Hynix in 2002. Like Elpida, Hynix had been suffering financially after chip prices plummeted.
DRAM pricing has been on the upswing in recent months, after suffering major losses due to oversupplies last year. The market has become markedly less volatile since Elpida's February bankruptcy filing, IHS iSuppli stated in a recent report.
"With things still very much up in the air on how events will unfold, industry participants seem to be waiting for some indication of what the resulting industry structure will be like after an Elpida takeover is finalized," said Dee Nguyen, a memory analyst at IHS iSuppli. "As a result, the current pricing environment appears to reflect this mood with the DRAM market eerily quiet, accompanied by visibly less pricing volatility atypical of the industry."
Micron announced that it is acquiring Elpida for $750 million and will also take over $1.75 billion in Elpida's debt. Elpida filed for chapter 15 bankruptcy in February. Micron's deal with Elpida states that the debt payoff will be supplied by Elpida's own subsidiary. That, Howard said, makes the financial terms of the deal "very smart."
Micron is paying the $1.75 billion of debt over seven years, but the debt payments are tied to cash flow from Rexchip, a joint venture between Taiwan-based Powerchip Technology and Elpida.
"If [Rexchip] doesn't perform financially, Micron doesn't have to pay down the debt," Howard said. "If the market takes a turn, they're going to be insulated. I think they're getting a really good deal."
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