Tuesday, October 14, 2008

Step 1?: Micron Closes Inotera Deal

Micron and Qimonda finally closed a deal to transfer Qimonda's 35.6% stake in Inotera for $400 million. The move was widely expected given the termination of Nanya and Qimonda's joint DRAM development activities and Nanya's joint DRAM development and manufacturing ventures with Micron.

The acquisition of Inotera will allow Micron to merge its manufacturing JV with Nanya, Meiya, into Inotera - akin to a backdoor listing - and allow Meiya to access the capital markets immediately. The original plan was for Meiya to go IPO three years after the start of operations and obviously, there's no need for that anymore.

Micron paid only $400 million for 50% of the capacity of Inotera or 60k wpm. A 60k wpm fab would've cost them $2.7 billion to build - quite a bargain. However, Inotera will have to install copper tooling for the 68nm process plus convert from trench to stack process. This will require about $800 million although this won't necessarily come out of Micron's pocket.

As for Qimonda, it's a new lease on life. They would've burned through their cash by the end of the year wthout the cash injection from the deal. They're closing Richmond 200 and getting out of consumer and mobile DRAMs to focus on areas where they're strong - infrastructure and graphics. Whether that is enough for them to survive as a standalone company is questionable given the fact that Inotera accounted for roughly 1/3 of QI's internal wafer capacity and the importance of economies of scale in memory manufacturing. They will at least need to re-engage with Elpida in the joint development activities to reduce the R&D burden. Or maybe the Inotera deal was just step 1 in a phased acquisition of Qimonda and step 2 and 3 are in the offing.