Marketshare matters greatly in the semiconductor memory market. The sector is one of the most volatile in the electronics industry, and wild swings in pricing, demand, and supply have resulted in the demise of companies in Asia, Europe, and North America, including Taiwanese suppliers and Qimonda, a spinoff of Infineon Technologies AG (NYSE/Frankfurt: IFX).
Scale is also highly important in the sector. The bigger a company is, the easier it is to fund capital expenses, withstand rough cycles, and snag more marketshare. That's why the deal by Micron Technology Inc. (Nasdaq: MU) to purchase a Japanese rival, Elpida Memory Inc. , is so significant for the Boise, Idaho, company. For the first time in more than a decade, Micron stands a chance of boosting its marketshare and improving its odds of surviving another market winnowing.
The deal, announced July 2, would lift Micron to the No. 2 global position in the DRAM market, according to IHS. The research firm says Micron would command almost one-quarter of all industry sales, putting it ahead of Hynix Semiconductor Inc. of Korea. Samsung Electronics Co. Ltd. (Korea: SEC), the perennial market leader, would still have a marketshare of almost 41 percent.
Mike Howard, senior principal analyst for DRAM and memory research at IHS, wrote in an emailed research note that buying Elpida would be a huge boost for Micron's status in the DRAM sector.
Micron will see its market share and DRAM manufacturing base nearly double as a result. Furthermore, Micron is gaining access to some excellent mobile DRAM technology, which should greatly improve its product portfolio. The $2.5 billion sale price is reasonable and shouldn't impact Micron's cash position adversely. It will likely take at least six months for the deal to close, but IHS expects a very quick transition and integration once it does.
There are other benefits for Micron and other leading DRAM vendors. Elpida had previously announced bankruptcy proceedings, a move that sharply reduced plant utilization and supply, which in turn stabilized DRAM pricing. IHS said that before the Elpida bankruptcy filing, "the DRAM industry in 2011 had been bedeviled by excess DRAM manufacturing capacity, which drove down prices and caused revenue to decline." After the transaction closes, Micron is expected to further reduce Elpida's manufacturing footprint. According to IHS:
The consolidation of the DRAM market set off by Elpida's bankruptcy and the subsequent purchase by Micron is bringing new stability to DRAM pricing, helping lead renewed growth to the market.
Global DRAM industry revenue this year is forecast to reach $30.5 billion, up 3.3 percent from $29.6 billion in 2011. Although seemingly small, the revenue expansion for 2012 is a welcome development given the market's stunning 25 percent contraction last year.
Though buying Elpida is seen as a positive move for Micron, it will doubtlessly increase pressure on small players as OEMs consolidate purchases. Companies like Nanya and Windbond, each of which has a marketshare of less than 5 percent, will find it harder to compete against the established players. Even Hynix will not escape unscathed. DRAM production is highly capital intensive, and the higher up the ladder a supplier sits, the easier it is to secure financing for plants and other production activities.
The combination of Micron and Elpida would put Hynix at a slight disadvantage while it is still sorting out problems with investors and financiers. Could Hynix make a move for smaller rivals to boost marketshare? That's unlikely, and it would not dramatically change its position, because its rivals have relatively small marketshare. For now, the wind is behind Micron, and it may pull farther away from Hynix.
Catching up with Samsung is quite another matter. The Korean giant isn't letting up on strategic moves to pile pressure on rivals. It plans to increase capital expenses sharply in the year ahead. That's not a move Micron can afford to match right now, despite its relatively stable cash position. This transaction would increase its cash obligations for the next several years. For now, Micron should just savor being No. 2.
Although marketshare is a big deal in semiconductors, I'm not sure Micron really wants to catch Samsung. Samsung has slowly and quietly been exiting a number of its older DRAM businesses, and relies on being the volume and price leader to keep remaining businesses profitable. Although Micron chose to compete in DRAM, it seemed to me they had a different model. Analysts don't seem to think the Elpida buy was overly expensive or risky for Micron, so they gained share without over-spending. If marketshare does become the ultimate differentiator in the market, Micron may be making more acquisitions...of more bankrupt vendors.
It may not be easy for micron to catch up with Samsung with this acquisition. But they will definitely have significant market share and can grow faster compared to before.
Regarding HMC ( Micron's Hybrid Memory Cube ). TH eintended first use will be in large Data Centers where its use would reduce power consumption.
It is still in definition stage as more players ( e,g. MicroSoft ) join the consortium. Samsung was actually one of the earliest recruits ! But Samsung had already by themselves developed and demonstrated ( at IEEE Conferences in 2011 ) an early version called Wide I/O ( and JEDEC pretty much canonized that version in a standard published in Dec 2011 ). W/o going into technical details the difference between the two approaches ( Wide I/O vs HMC ) is in the trade - off between latency ( performance ) and process complexity - with Micron taking the high road in order to have a unique & higher performance product for which they can then ask for a premium. Elpida too had actually developed and presented back in 2009 ( at Conferences I attended in Japan ) a 8 die DRAM stack. Hopefuly their process technology will now help the Micron HMC consortia to move ahead.
But so long as Samsung remains a part of the HMC Consortia they are going to not just agree to a new standard but would also expect process know how. So I doubt if by itself HMC is going to give Micron that much of a leg up over Samsung.
Thanks Douglas. Micron may have risked it all with this acquisition but it was also playing for market share and the opportunity to advance its technology. The transaction will open up new chances for the company to move to new grounds.
Bolaji, Very good write-up. Micron's leadership role in the Hybrid Memory consortium with MIcrosoft now in, almost assures their continuing market share for advanced memory technology. The Cube " is a major step forward with regards to bandwidth and performance. I went to the UBM sponsored Design Con where speakers talked about the various benefits of the cube architecture including the low energy for transfering and also the reduced latency rates. This translates to lower power and faster parts. When Intel came ont he scene and set the PC-100, PC-133 standards, it brought all the memory players with their technology. Micron is in a key position to help define the standard for the cube such that their memory can be perfectly tailored early on to qualify and catch the market for the cube memory technology.
By moving to the core of the industry and offerings services that keep the system humming, a group within the electronics market has rendered irrelevant the question of ownership and control of the supply chain.
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Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
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