DRAM and flash-memory maker Micron Technology has swooped on Numonyx, the joint venture between Intel, STMicroelectronics and private-equity firm Francisco Partners in a deal worth $1.27bn in what may be a series of acquisitions in the resurgent but cash-strapped memory business.
Micron will pay using shares – there is no cash in this deal. "We are not leveraging the balance sheet to do this acquisition," boasted Micron CEO Steve Appleton in a conference call with analysts last night, shortly after all the parties to the deal managed to reach an agreement. Appleton apologised for the lateness of the call but said he wanted to get the news out as quickly as possible. "It is a really solid way to add to the company in a variety of ways."
In terms of size, Numonyx's sales are about three times lower than those of Micron, but the deal will propel Micron into second place in the memory market behind Samsung Semiconductor, narrowly leapfrogging Hynix Semiconductor. It sells into a different market than Micron, although it was one that Micron tried and failed to get into several years ago. The NOR flash business is now much smaller than the bulk NAND flash business that Micron now plays in, alongside DRAM. Appleton said the total market accounts for $4bn versus NAND's $18bn a year.
It's a stable business with fewer players but Appleton argued that scale, or the lack of it, would ultimately compromise the position of companies such as Numonyx and Spansion.
"NOR flash requires investment in development and manufacturing. But, by itself, it doesn't reach the scale you get in NAND and DRAM. It presents the same problem that a lot of [semiconductor] companies face in no-man's land," said Appleton, referring to the mid-sized chipmakers who are faced with the rising cost of process development on sales much smaller than those of the big players. "If you are going to make silicon, you need to make a lot of it. The Numonyx folks might disagree but I think the NOR business was very susceptible to being in that space."
Appleton claimed Numonyx fared better than Spansion in the recent memory slump. "[Spansion] tried to move to advanced processes and it put a lot of stress on the business. It became a cash challenge. Numonyx didn't go down that route. And when Spansion filed for bankruptcy, Numonyx became a beneficiary of that.
"I just don't think you can be a pure NOR player and expect to compete against a Samsung or Micron."
Appleton hinted broadly at possible further consolidation in the memory business, pointing at the DRAM makers of Taiwan that have survived the recession, but only just.
"Where the market is at today, it is obviously on an uptrend. With the lack of investment in the past year and a half, there is not a lot of organic growth to happen. The NOR business has a challenge in the context of what you have to develop. And in the non-NOR business, there are companies that have been significantly weakened, in Taiwan. Their access to capital is limited and they carry a high debt load," said Appleton.
Micron already has business relationships with Nanya: they jointly own Inotera. Because the smaller Taiwanese DRAM makers are cash-strapped, they will find it difficult to invest in new equipment to keep up with Samsung, Micron and Hynix in terms of process and will not be able to take full advantage of the chip market's recovery. This makes them potentially lucrative targets for a less cash-strapped acquirer.
"We will look at these things one at a time," said Appleton.
Although the acquisition will give Micron a solid position in a stable, if not exactly fast-growing memory sector, Appleton mentioned Numonyx's work in phase-change memory several times.
"They have an IP portfolio that we think is pretty strong. They are working on phase-change memory and they have done a great job. As it eats away at the applications that Numonyx is already in, we will be in the best position to take advantage of that," said Appleton.
However, Micron is not expecting phase-change to become a replacement for NAND flash - a claim that phase-change backers often make - at least not in the near term. Micron has dallied with the technology in the past, taking a licence from Energy Conversion Devices, the same company that supplied core phase-change knowhow to Numonyx.
Mark Durcan, president and chief operating officer of Micron, explained the company's thinking: "We see a number of places where phase-change can potentially play. To give a definitive idea of what the strategy will be, we need to wait for the acquisition to close. But there are a lot of opportunities in embedded and in the wireless space.
"We are believers that, eventually, it will play a role in a new tier of memory sitting between DRAM and mass storage. For mass storage, there are opportunities for phase-change, but we are not believers that it will plug in there in the short term.
"There will be successors to NAND. But we are not looking to phase-change as a short-term fix for the NAND business. We are looking at phase-change to create new markets for us as opposed to dealing with existing markets," Durcan concluded.