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Micron Technology to Acquire Remaining Stake in Inotera

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Semiconductor solution provider Micron Technology Inc.MU recently signed an agreement to acquire the remaining 67% stake in Taiwan's Inotera Memories Inc.

As per the Deal, Micron will be paying $3.2 billion in cash to finance the transaction. As per the new agreement, Micron will purchase Inotera's DRAM output at a premium to the market price.

The acquisition deal is expected to close in the middle of 2016, subject to customary closing conditions, including shareholder and regulatory approvals.

Micron, which holds a 33% stake in Inotera, had been trying to acquire the remaining shares for months. If this deal goes through, it will enable Micron to grasp all the financial and operational benefits of Inotera's business.

About Inotera and Nanya

Taiwan-based Inotera was formed in 2003 as a joint venture between Nanya Technology Corporation and Infineon. The company provides DRAM memory foundry services, especially on 300-mm silicon wafers.

Taiwanese DRAM maker, Nanya is one of the leading providers of memory solutions. It is now one of the top four DRAM companies in the world, the other vendors being Samsung and SK Hynix.

In Feb 2015, Micron revised its DRAM supply agreement with Inotera. As per the deal, it was agreed that Micron would purchase Inotera's DRAM output at a discount to the market price. In 2009, Micron bought out Infineon's share in Inotera.

Now, Micron and Inotera together are announcing a patent licensing agreement with Nanya Technology Corporation for an undisclosed sum. Per the agreement, Nanya can use Micron's 1x and 1y DRAM technologies. The deal represents an addition to Micron's existing license agreement for 20 nanometer (nm) technology with Nanya.

In fiscal 2014, Micron purchased approximately $2.68 billion of DRAM products from Inotera, which accounted for nearly 38% of its total DRAM gigabit production. With such a massive exposure to a single supplier, we believe that the recent deal will positively impact the memory chipmaker's profit margins, going forward.

Conclusion

It seems that the semiconductor industry is going through a massive consolidation phase as merger & acquisition activities are on the rise. According to the Semiconductor Industry Association (SIA), worldwide semiconductor sales are likely to witness a year-over-year growth of 3.4% in 2015 and 3.1% in 2016.

As per the report, last year, the worldwide semiconductor industry recorded sales growth of 9.9% and reached $335.8 billion. The industry is experiencing growth primarily due to developing end markets and new product offerings, supported by process and yield improvements by semiconductor manufacturers.

Continued strong adoption of tablets and smartphones, automotive electronics and the emergence of the new category of wearable devices have led to stronger demand for the processing and sensing devices that run them. These factors are likely to drive the semiconductor industry this year.

Hence we believe that the current acquisition deal should translate to stronger results at Micron. However, it may not be easy for Micron to capture share from SanDisk Corp SNDK - a key player in the NAND space.

Micron has a Zacks Rank #3 (Hold). Cadence Design Systems Inc. CDNS and VASCO Data Security International Inc. VDSI are a couple of better ranked stocks, sporting a Zacks Rank #1 (Strong Buy).

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SANDISK CORP (SNDK): Free Stock Analysis Report

MICRON TECH (MU): Free Stock Analysis Report

CADENCE DESIGN (CDNS): Free Stock Analysis Report

VASCO DATA SEC (VDSI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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