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Fate of Hynix-Micron Deal Unclear as Deadline Looms

Apr 29, 2002

EBN

South Korea

Although a deadline has been set for Hynix Semiconductor Inc.'s creditors to decide on whether to sell the South Korean chipmaker's DRAM assets to Micron Technology Inc., a deal between the two companies remains tentative.

The Hynix Creditors Council on Tuesday is scheduled to vote on the nonbinding memorandum of understanding (MOU) reached with Micron this week to acquire Hynix's six memory fabs.

But it isn't clear what will happen if Hynix's creditors don't agree to a deal by the end of the day or if Micron will stick around any longer to pursue one. Micron has been vague on what it will do, but hinted that it might walk away if the MOU is rejected.

Under the memorandum between Micron, Hynix's chief executive C.S. Park, and a creditors' delegation, Micron would pay Hynix's creditors 108.6 million shares at an unspecified price to acquire the company's DRAM assets. But as Micron's stock falls, so does the value of the deal.

Late this week, Micron's stock was trading at $27 per share, which would value the deal at $2.93 billion -- $300 million less than the day the MOU was reached. When the MOU was announced earlier this week, the pact was worth $3.35 billion and still greeted with derision by Hynix supporters in Korea.

If Micron stock continues to fall before a final deal can be reached, opposition is certain to spiral. Hynix's vocal labor unions threatened to strike unless the fab acquisitions were called off.

Micron also agreed to invest $200 million to take a 15% stake in Hynix's logic IC and foundry business. Also under the nonbinding agreement, Hynix creditors would provide $1.5 billion in financing at unspecified terms to upgrade the six DRAM fabs.

Not much enthusiasm

After a week of reflecting on the MOU, U.S. DRAM customers and affected parties in Korea were either lukewarm or actively opposed to a deal.

�The MOU, and any eventual Micron takeover of the Hynix fabs, doesn't have much immediate impact on the market,� said Sherry Garber, an analyst at Semico Research Corp., Phoenix. The real gains won't start showing up for nine months to a year, when Micron could complete the upgrading of the aging Hynix fabs it would take over, she added.

Joe Osha, chip analyst at Merrill Lynch & Co. Inc., New York, even doubted that Micron would move that quickly to revamp the Hynix fabs after a deal is completed.

�Micron is going to focus more on generating returns from the existing assets and less on aggressive capital spending,� Osha said. That would hold Hynix capacity near its current level and hold back any DRAM oversupply in the near future, a price-bolstering move that wouldn't be good news for memory customers.

But other DRAM rivals seem bent on building their capacity to competitive economies of scale to battle Micron's expanded potential global market share of more than 35%.

Samsung Electronics Co. Ltd., the world's largest DRAM producer, earlier this month raised its 2002 capital spending budget by $700 million, to $2.5 billion. And Infineon Technologies A.G. is ramping up two 300mm DRAM fabs and boosting supply agreements for chips with its Mosel Vitelic partner and Winbond Electronics Corp. in Taiwan, and negotiating a possible supply alliance with Taiwan's Nanya Technologies Corp.

Elpida rumors

Rumors also swirled around Elpida Memory Inc. this week that the Japanese joint DRAM venture of NEC Corp. and Hitachi Ltd. would augment its own 300mm-wafer fab under construction in Japan with a possible alliance in Taiwan. Mitsubishi Electric Corp. also reportedly has looked at entering the Elpida joint venture, but spokespersons from both companies said that such a move isn't in the cards.

Many DRAM suppliers said they wouldn't feel threatened by Micron's position if it succeeded in closing the deal. In fact, some executives said consolidation would be good for the industry.

�We believe that a Micron/Hynix deal could prove to be a stabilizing factor in the market, which will be beneficial for the entire industry,� said Ulrich Schumacher, president of Infineon, in a released statement. �We continue to monitor this relationship with a high level of interest.�

Tom Quinn, vice president of sales at Samsung Semiconductor Inc., the San Jose-based subsidiary of Samsung Electronics, said, �Like everyone else, we're watching the Micron and Hynix situation very closely. But whatever happens, Samsung will continue to pursue its strategy of volume production of leading-edge memory products in all segments of the market.�

Samsung isn't concerned about Micron surpassing it as the largest global DRAM supplier if Micron purchases Hynix's fabs, Quinn said. �Our primary goal is to serve our customers, not to worry about who's on the top rung of global supply.�

Taiwan's DRAM producers were nonchalant about the pending Micron deal. Their positive outlook, however, could spell a rebound in DRAM prices for customers, if a predicted tightening of supply does occur.

�The merger will decrease DRAM supply in the future. Micron would tune the process technologies in some of Hynix's fabs,� said Thomas Chang, an executive vice president at Mosel Vitelic Inc., Hsinchu.

Hander Chang, an assistant vice president at Winbond, thought any Micron deal would also accelerate the consolidation trend of DRAM makers.

�Smaller players have bigger chances to be merged, otherwise they wouldn't be able to compete,� Chang said. He also speculated that Micron will have its hands full trying to manage Hynix's tough union workers.

Some DRAM customers last week didn't appear overly worried about a big market shakeup.

�We have tight relationships with our DRAM suppliers. From what I've read, Hynix [executives] might make more money from a dissolution of the company rather than an acquisition,� said Jerry LaGrange, global commodity director of semiconductors at Manufacturers' Services Ltd., a Concord, Mass., EMS company. �The market that supports DRAM hasn't come back yet. I don't think there will be a short-term impact on prices.�

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