What’s Micron’s Strategy behind Acquiring IMFT Joint Venture?

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Micron to acquire Intel’s stake in IMFT joint venture

Micron Technology (MU) has been hit by the memory industry downturn, as memory supply has risen while the demand softened in the graphics, cloud, and mobile space, creating a situation of oversupply. This downtrend will likely send the company’s earnings spiraling down for the next few quarters until the demand and supply balance out.

Amid the cyclical downturn, Micron announced that it will exercise its call option to acquire Intel’s (INTC) non-controlling interest in the IMFT (Intel Micron Flash Technologies) JV (joint venture) for $1.5 billion cash. This transaction is to be completed on any date of 2019 set by Intel. Micron announced its intention to acquire IMFT back in October 2018 and exercise its option in January 2019.

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The above transaction will remove IMFT member debt of $1 billion from Micron’s balance sheet. At the end of November 2018, Micron had a net cash position of $3.1 billion with a debt of $4.1 billion and cash of $7.2 billion. Apart from the cash reserve, the company has a $2.5 billion revolver that improves its liquidity to $9.7 billion. The IMFT transaction is not expected to have a significant impact on Micron’s cash flows or capital expenditure.

What IMFT means to Micron and Intel

Micron is acquiring its IMFT JV, which it entered in 2006 to develop NAND (negative AND), 3D XPoint, and other emerging memories. The acquisition will give Micron complete control over the JV’s development and manufacturing facility in Utah, thereby accelerating its R&D (research and development) efforts. This acquisition shows that Micron is optimistic about the opportunity presented by the 3D XPoint technology.

Micron’s past acquisition of Inotera JV

This is not the first time Micron is buying its partner’s stake in a JV. The company acquired Nanya Technology’s stake in Inotera DRAM (dynamic random access memory) JV back in 2016 when the DRAM market was in a cyclical downturn. This acquisition delivered strong returns when the DRAM market moved to an upturn in late 2016 and full-year 2017. Its return on investment rose from 0.4% in 2016 to 21.8% in 2017 and 43% in 2018. Next, we’ll look at Micron’s fundamentals to see if investors should worry about this acquisition in a cyclical downturn.

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