Micron buying Elpida: report

Brad Carlson//June 29, 2012

Micron buying Elpida: report

Brad Carlson//June 29, 2012

Micron Technology Inc. will buy Elpida Memory Inc., a Japanese memory chip maker in the midst of bankruptcy, the Nikkei newspaper said in a report that did not identify sources.

Nikkei reported Micron will pay 200 billion yen or $2.5 billion. Up to 70 percent of the price will be used to repay debt, and about 70 percent of Elpida’s debts won’t be repaid, the newspaper said. Micron reportedly will invest 100 billion yen in Elpida operations.

Daniel Francisco, Micron spokesman, told the Idaho Business Review the company does not comment on “rumor and conjecture.” In May, a Tokyo district court assigned Micron the exclusive right to have sponsor negotiations with Elpida trustees about buying Elpida.

Whether Micron buys Elpida depends on how Micron pays, such as with additional stock or debt, said Lane Mason, memory market analyst with Objective Analysis, Los Gatos, Calif. Micron has been successful at structuring purchases, but Elpida could be risky depending on how much Micron buys it betting on improving market conditions and post-consolidation cash flow, he said.

Micron on June 20 reported a quarterly loss. CEO Mark Durcan at the time said the company is interested in buying Elpida, which represents 15 to 20 percent of the memory market’s production capacity, if it can do so under the right terms, such as avoiding excess debt or stock dilution.

Mason said he thinks the deal will go through. Deal structure is important given Elpida’s losses and high cost structure, and the Dynamic Random-Access Memory market’s poor but improving condition, he said.

Success also will depend on how well and how quickly Micron makes any changes to Elpida systems, he said. Elpida’s DRAM business has older production equipment but some advanced products, while output from its successful Rexchip advanced DRAM venture is from a newer facility using the latest processes, he said.

Mason said the worst case is that the DRAM market remains under a lot of pressure and Micron struggles with integrating Elpida. The best case is that the market recovers a bit, and Micron expands Rexchip-like processes into other Elpida and even Micron facilities, he said.

Micron stock closed at $6.31 June 29 compared to a one-year range from $3.97 to $9.16.