Following
Micron Technology Inc
's (
MU
) bid for Japanese chip maker Elpida Memory, the trustees have
recently announced that both companies signed a definitive sponsor
agreement for the proposed takeover.
The Tokyo District Court acted as the adjudicator of the
agreement, related to Elpida's corporate reorganization
proceedings.
As per the terms of the agreement, Micron will pay 200
billion Yen, as reduced by reorganization expenses, to Elpida's
secured and unsecured creditors to satisfy their reorganization
claims. Besides the reorganization settlement, Micron will be
required to pay 60 billion Yen for the acquisition, translating to
approximately $750 million.
This apart, Micron will also have to shell out 140 billion Yen
(or $1.75 billion) in future annual installments through 2019 for
foundry services provided by Elpida to Micron as its subsidiary.
The financial support would thus result in the discharge of
Elpida's debtors, while supporting its operations and
employees.
In a separate development, Micron signed an agreement to acquire
a Taiwanese company, Powerchip Technology Corporation, and some of
its affiliates, which will ensure the procurement of Powerchip's
24.0% stake in Rexchip Electronics Corporation for approximately 10
billion Taiwanese dollars, or $334 million.
Sluggish growth in personal computer stemming from chip gluts in
recent years have been triggered by sales and improvements in
productivity, mainly owing to massive capital investment. This has
resulted in lowering of chip prices closer to production costs.
This has put immense pressure on SK Hynix's margins and led to a
loss at the company.
On the other hand, improvement in demand for mobile devices such
as tablet PCs and smartphones will drive DRAM sales and would cover
up some of the weak PC industry demand.
Though Micron's prospects in the mobile DRAM market look
promising, it will not be easy to outpace Samsung, which commands a
leadership position in this market. Recently, another research
firm, TrendForce, revealed that mobile DRAM production capacity is
increasing.
This apart, after this acquisition, around 90.0% of the
worldwide chip industry will be controlled by three firms --
Samsung Electronics, Micron and SK Hynix -- which may help to
stabilize the price fluctuation in this market.
Moreover, Gartner affirms that decelerating supply and
increasing demand will lead to an improved scenario beginning in
the second half of 2012 and through 2013.
Micron's third quarter results were disappointing as net loss
per share was wider than the Zacks Consensus Estimate. However, we
remain positive about Micron's pending Elpida buyout, which could
drive higher DRAM market share. Also,
Apple Inc.
's (
AAPL
) reliance on Elpida could be a big positive for Micron going
forward.
Then again, we believe that it won't be easy for Micron to
capture share from
SanDisk Corp.
(
SNDK
), a key player in the NAND segment. However, the renewal of
operations in Thailand may help the company in this respect.
Micron Technology has a Zacks #3 Rank, implying a short-term
Hold rating.
APPLE INC (AAPL): Free Stock Analysis Report
MICRON TECH (MU): Free Stock Analysis Report
SANDISK CORP (SNDK): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research