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Analysis: Why Micron bought Numonyx

Posted: 16 Feb 2010 ?? ?Print Version ?Bookmark and Share

Keywords:Micron Numonyx deal? NOR flash? memory market? NAND flash?

Micron Technology Inc.'s take over of NOR flash leader Numonyx Holdings B.V. is part of an ongoing diversification strategy by the U.S. memory maker.

In recent times, Micron has expanded into new markets by entering the microdisplay, solid-state storage and solar markets. It has also spun off its CMOS image sensor unit and is toying with LEDs.

It is unlikely that those emerging product efforts will make a dent on the bottom line, but Numonyx will have an immediate impact. And in many respects, the Numonyx acquisition represents Micron's biggest gamble to dateand could make or break the U.S.-based memory maker.

As reported, Micron agreed to acquire Numonyx for $1.27 billion in stock. The long-awaited deal with Numonyx gives Micron a one-stop shop for memories that could rival Samsung Electronics Co. Ltd. Micron sells DRAMs, NAND flash and pseudo SRAMs. Numonyx sells NAND, NOR and a next-generation technology called phase-change memory (PCM). PCM is one of many technologies in the "universal memory" arena.

Still, faced with a declining product line in NOR and a bloated overhead, Numonyx could not have survived on its own over time. So in other words, the Numonyx deal could backfire and break fragile Micron. Indeed, the U.S. memory maker has recently reported its first profit in three years and the company is still reeling from the nasty downturn.

The big question is why would Micron buy a company that primarily sells a declining and bland product like NOR? First, perhaps Micron wants to extend its reach in the handset with NOR. Second, maybe Micron wants to gain access to Numonyx's next-generation PCM line, a technology that has generated interest from cellphone giant Nokia Inc.

Or thirdly, perhaps Intel Corp. brokered this deal and Micron reluctantly agreed to appease its quiet partner. Intel is not only seeking an exit strategy with Numonyx, but it quietly wants to expand its leverage and influence inside Micron, observers speculated.

Intel, now a shareholder of Micron, has a NAND flash venture with Micron called IM Flash Technologies LLC. Separately, Intel and STMicroelectronics Inc. own a majority share in Numonyx.

The truth may lie in all three theories, but nonetheless, some analysts were caught off guard by the acquisition. "We are a bit surprised by Micron's move to invest in a low-growth product category such as NOR flash," said Hans Mosesmann, an analyst with Raymond James Equity Research.

"We do not see much of a strategic importance in Micron's move to buy Numonyx. Therefore, the merits lie entirely on tactics and potentially the give-and-take of the Intel relationship," Mosesmann said in a report.

During a conference call, Micron was bullish about the deal. The company did not discuss the integration process. But clearly, Micron will most likely cut Numonyx's overhead and its headcount. "We think this deal will make us stronger," declared Steve Appleton, chairman and CEO of Micron, during the conference call.


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