Elpida, Rexchip purchases will make Micron second-largest DRAM manufacturer

Micron Technology Inc. on July 2 confirmed it is buying Japan-based Elpida Memory Inc., which is in bankruptcy.

Micron also said it will buy a 24 percent stake in Rexchip Electronics Corp. for about $10 billion, from Taiwan-based Powerchip Technology Corp. Elpida already has a 65 percent ownership interest in Rexchip, which operates a 300-millimeter Dynamic Random-Access Memory (DRAM) plant in Taiwan as well as an assembly and test facility in Japan.

Adding Elpida and Rexchip will increase Micron’s manufacturing capacity by 50 percent, Micron said.

The deal will make Micron the world’s second largest manufacturer of DRAM, behind Samsung, and will provide Micron with additional products.

“Size matters in this business these days,” said Lane Mason, memory market analyst with Objective Analysis in Los Gatos, Calif. Samsung has production cost advantages, but Micron could reduce costs as it integrates Elpida, he said.

The $2.5 billion deal includes a $750 million cash payment for all Elpida equity, and $1.75 billion in future installments. The cash payment is due at closing, expected in the first half of 2013. The installments, slated through 2019, would discharge all Elpida debt.

Buying Elpida also strengthens Micron’s position in mobile DRAM, which could better position Micron in the cell phone and mobile computing business, he said. Elpida is an Apple supplier.

Mason does not expect an immediate payoff for Micron.

“The market has to rebound a bit – the market growing, supply shrinking, or both,” Mason said. “It could be as soon as a year or two, or it could drag out longer than that.”

But acquiring a company when demand is weaker gives Micron and Elpida time to work on blending their technologies, Mason said.

“A lull in demand means they can move technology into production without suffering much on reduced output,” Mason said.

Jim Feldhan, president of Semico Research in Phoenix, said it will be four quarters or longer before Micron realizes all benefits of integrating Elpida. Micron will reap some benefits immediately, such as Elpida’s revenue and manufacturing capacity, and its access to the Japanese market, he said.

“Efficiencies, and combining cultures, aren’t going to happen right away,” Feldhan said.

“Typically the most challenging part of most acquisitions is to get those two cultures to work together and keep the best of the new company, and incorporate it into the buying company,” he said.

Micron’s new capacity in manufacturing chips on 300-millimeter wafers, the industry’s current standard for efficiency, is important, Feldhan said.

“If they didn’t buy Elpida, would they have built a 300-millimeter plant in Boise? Probably not,” he said.

Micron CEO Mark Durcan, in the company’s quarterly results conference call with analysts June 20, said Elpida has 15 to 20 percent of the memory market’s production capacity.

Micron stock was up by 4.6 percent in midday trading July 2, the day the deal was announced, to $6.60. The one-year range is $3.97 to $9.16.

Updated to correct analyst’s company name.