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Court gives go-signal on Micron-Elpida merger, re-org

Posted: 05 Mar 2013 ?? ?Print Version ?Bookmark and Share

Keywords:DRAM? Micron-Elpida merger? NAND Flash? memory market?

The Tokyo District Court has officially approved Micron Technology Inc.'s acquisition of Elpida Memory Inc. The court has also give the go signal to proceed with the companies' plans for re-organization procedures that are seen to begin this month.

Although several of Elpida's creditors had been against the move, the Bank of Japan, which has one of the largest stakes in the company, was able to amass enough votes to gain an eventual approval. Of the $2.16 billion (?200 billion) that Micron is expected to make for the Elpida acquisition, approximately $6.5 billion (?60 billion) will be paid out first. The remaining $1.5 billlion (?140 billion) will be made on 2019, after the merger has been completed.

With regards to Elpida's current debt of $4.9 billion (?450 billion), under the regulatory procedures approved by the courts, insured creditors are allowed to receive full indemnity as the debt is trimmed in half. For those who are not properly insured, the compensation received from the convertible debt will be of a lesser amount.

Elpida is expected to make a comeback under Micron, following the lowering of the total debt and the extensions made to the repayment period. The new Micron group is seen to officially take form this year.

In terms of revenue ratio, Micron's acquisition of Elpdia, increases further consolidation within the DRAM industry. Big changes are expected to take place within the industrial and supply chain infrastructures. While Micron and Elpida each took a respective 10.5 per cent and 14.1 per cent market share during the recent quarter, both are currently still lagging behind SK Hynix Inc., which is second in the industry and has approximately 25 per cent of the market. Following the merger, Micron and Elpida will have a combined share of 24.6 per cent, which not only pulls them within distance of SK Hynix, but also enables them to join the likes of Samsung as one of the big three" within the industry. With regards to the mobile memory market, although Micron's and Elpida's market shares are currently around 1.3 per cent and 19 per cent, respectively, the merger effectively brings their total to 20 per cent. This is still noticeably less than SK Hynix's 28.3 per cent, but makes the new Micron group a major force to be reckoned with. As the DRAM industry moves closer and closer to an oligopoly, there is a chance for the condition of the DRAM industry to improve dramatically.

New group to take advantage of strengths within the organization

Analyzing from the competition perspective, the newly established Micron group will utilize the manufacturing capabilities of Taiwan, US, and Japan, and become a formidable threat to the major Korean DRAM manufacturers. While Micron will be directing the majority of its focus to the production and development of NAND Flash products, for Elpida, most of the emphasis will be placed on DRAM-related development. With its gradual reduction in DRAM capacity, Micron is expected to begin allocating some of the manufacturing responsibilities to its Taiwanese and Japanese subsidiaries. Elpida's Hiroshima plant, for example, is expected to concentrate on mobile DRAM, which currently accounts for over 80 per cent of the plant's production. In the future, Micron's advances in NAND Flash technology will enable more and more MCP products to enter the smartphone market, and allow it to take advantage of the vertical integration within the market. For Rexchip, other than standard PC DRAM production, there is a chance that the company will begin manufacturing mobile DRAM to gradually improve its profitability. For Inotera, following the increased demand in the cloud market, the amount of PC DRAM produced has been reduced, while the proportion of server DRAM increased back to 50 per cent. Given the relationship between Micron and US-based manufacturers, there's hope for the server DRAM market to advance to further heights. In the event that Micron successfully utilizes the manufacturing capabilities of its Taiwan, Japan, and US plants, other than achieving steady revenue, wafer productions are predicted to reach close to 360K on a monthly basis, accounting for nearly 35 per cent of the world's DRAM production. The DRAM market is set to become an oligopoly following the establishment of the new Micron group as a major player within the industry.

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