Acquisition ensures total cooperation from firm
On December 14, 2015, Micron Technology (MU) announced that it will buy the remaining shares of Taiwanese foundry partner Inotera Memories in a share swap transaction. Micron is currently the third-largest player in the DRAM (dynamic random access memory) market after Korean giants Samsung (SSNLF) and SK Hynix (HXSCL). Inotera was partially owned by Formosa Plastics. Formosa and Micron own 32% and 32.7% of Inotera, respectively.
Currently, Micron’s DRAM capacity is 310,000 wafers per month. Micron’s acquisition of Elpida Memory ensures a supply of 100,000 wafers of total capacity, whereas 80,000 wafers are supplied by the Rexchip Electronics acquisition. Inotera is a server and PC (personal computer) DRAM supplier for Micron and provides 100,000 wafers of the total DRAM capacity.
Micron’s acquisition motives are multifaceted
According to DRAMeXchange analyst Avril Wu, changes made in the pricing agreement between Micron and Inotera would have negatively impacted the latter’s profit margins, leading to a conflict of interests between the two parties. “China is already in full swing to build a domestic semiconductor sector, with DRAM as the cornerstone,” said Wu. “Micron would be in more of a dilemma if its partnership with Inotera started to fall apart since the Taiwanese government are beginning to take more relaxed stance towards Chinese investments in the local semiconductor companies.”
Micron will thereby have complete control over any collaboration with its new subsidiary foundry. In addition to this, Micron has eliminated political and business uncertainty.
Micron constitutes 3% of the VanEck Vectors Semiconductor ETF (SMH). Its top three stocks, Intel (INTC), Taiwan Semiconductor (TSM), and Qualcomm Technologies (QCOM) constitute 19%, 12.7%, and 8.4%, respectively, of the ETF.