Toshiba deal benefits both Micron and industry

Dec. 19, 2001 – San Francisco,CA – Micron Technology will buy Toshiba Corp.’s U.S. commodity memory-chip business, which is good for both the No. 2 memory chipmaker and the industry, potentially putting Micron in the cat-bird seat as the memory chip market ripens for consolidation, according to analysts.

“It’s good news for the overall DRAM space in that a major competitor, not a huge one, but a major one is exiting the business and at the same time Micron is picking up some of the assets, part of the business and some of the market share in the process,” said Needham & Co. analyst Dan Scovel.

Micron Technology is the No. 2 maker of DRAM chips, after Korea’s Samsung Corp. Due to the stunning contraction in the memory chip business, forecast to decline by about two-thirds from some $29 billion last year, Micron has been angling to buy memory-chip plants from rivals in a bid to control more of the industry’s capacity to stabilize prices.

“Micron is uniquely positioned to lead a consolidation because they’re a large company almost exclusively focused on the DRAM market,” said Banc of America Securities analyst Doug Lee, who added that, because Toshiba has only about 5 percent of the global DRAM market, it was important not to overstate just how much the deal helps the overall industry by taking capacity offline.

Toshiba, facing massive losses in its chip business this year, agreed to sell its Dominion Semiconductor plant in Manassas, VA, for undisclosed terms, but Lehman Brothers analyst Dan Niles said the purchase price was less than $500 million, adding that it would have cost $2 billion to build the plant from scratch.

Dominion, which employs about 1,100 people, makes 128-megabit DRAM chips and was originally a joint venture between Toshiba and International Business Machines Corp., established in 1995. IBM sold its interest in Dominion to Toshiba in 1999.

The deal is also a setback for No. 2 European chipmaker Infineon Technologies AG of Germany, which a week ago said it had reached a preliminary understanding on combining its memory-chip operations with those of Toshiba.

“The courtship of Toshiba has ended, but Infineon has clearly indicated they’re committed to the business and are willing to talk,” Scovel said.

With the deal, Toshiba is exiting the commodity DRAM business, but will still remain in the business of making Rambus DRAM chips that the company sells into Sony Corp.’s PlayStation 2 video game machines. Also excluded from the deal is Toshiba’s flash memory operations. Toshiba will move its Flash Vision joint venture with SanDisk to its Yokkaichi facility in Japan.

As well as taking over Toshiba’s plant in Virginia, Micron is also talking to Toshiba about co-operating in making non-commodity DRAM chips and has been talking to South Korea’s struggling Hynix Semiconductor Inc, the world’s third-largest DRAM maker, on a possible DRAM alliance.

Micron Chairman, President and Chief Executive Steve Appleton said on the call that he expected the transaction to close by the end of the current, second quarter.

While Hynix insisted talks with Micron were still on track, analysts said the likelihood of a deal was receding fast.

“Micron seems at one stroke to have pulled the rug from under both Hynix and Infineon,” Andrew Norwood, senior analyst at industry consultancy Gartner Dataquest, said. “I would have been surprised to see Micron and Hynix together in the first place. I would be even more surprised now.”


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