February 10, 2010 – Fulfilling a long-rumored deal, Micron Technology has agreed to buy the Numonyx NOR flash-memory joint venture between Intel and STMicroelectronics (formed in mid-2007) for about $1.27B in stock (plus another 10M in shares, worth another $84M at the time of this writing, based on stock performance).
A scan of industry analysis of the deal has a mixed bag of pros and cons:
– M&A opportunism. Numonyx, with financially-challenged Spansion, took up 60% of the NOR flash market; Numonyx should add roughly $1.5B to Micron’s revenue stream at current run rates, noted Jim Handy from Objective Analysis, which would push Micron up to third place in global memory rankings ahead of Hynix. General consensus is that Micron has snapped up assets on the cheap, paying only 0.6x sales valuation for Numonyx.
The deal also adds manufacturing capacity on the cheap, too — NOR flash lags DRAM and NAND by 1-2 generations, so it can be done with older equipment, meaning less investment and operating expense synergies (i.e., shared R&D and costs with other internal work), notes Broadpoint AmTech’s Dinesh Moorjani. Handy notes that Numonyx brings with it a 200mm production fab, and a 300mm shell in Italy.
– Beef up vs. competition. The deal beefs up Micron’s memory portfolio in NOR flash as well as phase-change memory (see below), raising its profile in the overall memory sector. Handy notes that Hynix has been using Numonyx for both NAND and DRAM contract manufacturing (which included investing in Hynix’s fab in Wuxi, China). It’s unclear if or how this relationship would change under the new Micron ownership.
– Phase-change memory. Besides NOR flash, this deal also has legs with PCM, seen as a potential memory replacement for NOR flash once scaling limits take hold, Handy says. Numonyx first recorded PCM shipments in 2008, and licenses its PCM technology from Ovonyx (which ironically was founded by former Micron exec Tyler Lowrey, Handy adds).
– Exit strategy/payoff. This sale takes the place of a planned IPO which was scuttled once the recession hit, according to Intel spokesperson Chuck Mulloy. Intel, which has been backing two flash memory ventures (Numonyx and IM Flash), keeps its flash ties busy and makes some money too; STMicro repays more than a half-billion dollars of loans and debt and cashes out with $280M worth of shares.
– Why NOR flash? Outside the key market of handsets it’s not exactly a growth market — and even with handsets it’s being overtaken by NAND flash (Avian Securities’ Dunham Winoto, cited by Barrons blogger Eric Savitz).
– Whither margins? How will taking on Numonyx impact MU’s bottom line? MU claims the deal will be accretive on free cash flow/non-GAAP EPS basis starting in 2011. Investors seem hung up on this, too — MU stock price sunk more than 6% today, hours after the news broke.
– More supply, worse pricing? More money spent in the memory sector increases the likelihood of supply build, and subsequently price erosion. (S&P’s Clyde Montevirgen, also cited by Barrons).