Micron calls it quits over Hynix

Micron Technology Inc. is walking away from further negotiations with Hynix Semiconductor Inc. after a deal between the two collapsed earlier this week.

“After careful evaluation, we are unable to discern a process that would allow the numerous parties involved to reach agreement in a timely manner. As a result, we are withdrawing from the Hynix negotiations,” the company said in a brief statement issued early Thursday.

Micron began talking to creditors of heavily indebted Hynix in December last year, talks which culminated in the signing of a memorandum of understanding (MoU) in April under which Micron would acquire the DRAM (dynamic RAM) operations of Hynix in return for 108.6 million shares and 15 per cent of the remaining company for US$200 million.

The deal was approved by Hynix’s creditors but rejected by its board during a meeting on Tuesday, which was also the deadline for negotiations spelled out in the MoU. Among reasons given by the board for its rejection of the deal were that the post-merger restructuring plan for the remaining company had too many problems and that the deal also overestimated the value of the Micron stock to be paid for the sale of Hynix’s memory business.

In the time between the announcement of the deal and the board’s rejection, the value of the Micron shares on offer had fallen by $331 million to close to $2.9 billion.

With Micron gone from the picture, Hynix now has two options: to go it alone or to find another partner with which to strike a deal.

The second of these options may prove difficult, said S.K. Kim, a DRAM analyst at market research company IDC in Seoul.

“I don’t think they will try to find another partner. The only company that showed an intention to buy (Hynix) was Micron. If Micron will not continue their talks, there will be no other companies,” he said.

Slowly improving conditions in the DRAM market are also making the first option more attractive. Hynix’s DRAM operations returned to profitability in the first quarter of this year and the company announced a net parent company unconsolidated profit of 3 billion won (US$2.3 million) for the quarter.

The future looks brighter, said Kim.

“If you look at the long term fundamentals, we think the industry has already reached bottom. The consolidation has finished and now there are four main players – Micron, Hynix, Infineon (Technologies AG) and Samsung (Electronics Co. Ltd.) – and they have 70 per cent to 75 per cent total marketshare. The sellers have the bargaining power.”

Kim also said the supply side looks stable, with no new capacity expected on line until the end of the year or later.

Still, the market has served a recent reminder of how fast it can turn. The price of chips has slipped by around one quarter to $3 for a 128M bit SDRAM (synchronous DRAM) chip. The drop may yet prove to be short-lived: The second quarter is traditionally a quiet period and market watchers are expecting higher prices later in the year if the U.S. economy improves as expected and PC sales begin rising.