Micron isn't looking for additional manufacturing capacity. I don't see a pressing reason for it to go for any other memory manufacturer. Elpida would be enough.
Micron will be assuming the debt obligations. That's part of the transaction and it will be making periodic payments to Elpida's investors and bondholders for the next few years. Elpida is already in bankruptcy proceeding and perhaps some of its debts may be written off to make it solvent again even if the Micron deal falls through.
I think the merger of Micron/Elpida would present Samsung with its most powerful rival yet, but the big question is can this merger help to solve the debt concerns of Elpida ?
@Chipmonk, I was never in doubt that Micron needed to mop up excess capacity in the market even if my article didn't indicate that. Micron isn't a selfless enterprise that would say it was acquiring Elpida to do the entire industry a favor. Plus, it would be an anti-trust move if the company said this. You are right in your comments that this was a strategic action to help reduce production capacity.
What I noted in my blog was essentially that acquiring Elpida will give Micron additional clout in the form of market share gain. Without the additional market share gain, the acquisition of Elpida wouldn't help Micron. It gives it scale and helps it move away from the smaller players. These ones also will benefit from Micron's action in terms of pricing stablility but it will also hurt them since they are no longer the first procurement source for buyers.
Good, so now you understand that buying Elpida was not just about gaining a larger market share ( as your article had implied ) in a loss - making product ( DRAM ) but to reduce DRAM production capacity so as to stay in sync with shrinking demand and then perhaps even hope for some rise in ASPs. Of course any price rise will help Samsung even more ( 45 % market share ) but it would at least stop the bleeding for Micron. And they would get the breathing space ( and some extra cash ) to cook up their next move.
Competition is usually a good thing for the market. If Micron emerges as a force in DRAM, what will be the effect? Usuauuly that means driving prices down, which will be good for buyers but not suppliers.Technology advancement? I'm not qualified to comment on that (thanks to Chipmonk for the analysis--very helpful!) but that's usually an upside. But, as Bolaji says, the DRAM market usually just reacts to boom-bust cycles and nothing changes.
Barb, Except that the other DRAM vendors in risk of bankruptcy really don't have much in market share. Samsung is the price and volume leader as you rightly said and it achieved this by driving everyone else to either the edge of or right into bankruptcy. Micron is a beneficiary of Samsung's aggressive play. Let's just hope it has another game plan ready when Samsung raises the stake.
@Chipmonk, The strategy you described has long been used in the DRAM market to mop up excess demand. Unfortunately, these companies also have a tendency for self-destructive behavior. They reduce manufacturing capacity in one cycle and soon hike production simply to make sure the competition is losing money but this eventually backfires.
The intrigues in this industry could fill a book but the bottom line is simple: Micron didn't buy Elpida simply because it needed the additional facility or technology. The entire industry needed to take Elpida's capacity offline, even if only for a short time.
The DRAM business is sort of like the Airline business ( " How do you make a Million ? Start with 10 million and then run the operation for a year, you will be left with a million !! )
Given the long term reduction in DRAM demand due to ongoing tra, and you will be left with nsition away from traditional PCs to Tablets or even Ultrabooks that use SSDs ( NAND to DRAM ratio is now at 16, soon to be higher ) no business in their right mind would want to get a higher market share of a larger but still loss making DRAM biz. Instead they would put the extra capacity out of circulation to stop the glut and falling prices. So they would go for a higher Market Share BUT ONLY of a SMALLER market overall.
So the most logcal scenario for this extra DRAM capacity from Elpida Hiroshima Fab would be to mothball it for a while to stabilize DRAM price and then perhaps convert it to higher grade DRAM ( faster, less power ) for Servers ( need to instal 1 new Server for every 70 new SmartPhone / Tablet user ) or even NAND for SSDs. The totally out of the box option would be to turn Elpida's 30 nm DRAM Fab into a 30 nm / 28 nm Foundry to take advantage of the capacity shortage at sub 40 nm for SoCs etc. for SmartPhones / Tablets.
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Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
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Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
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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Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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