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A Bidding War Starts Over 1 Bankrupt Memory Maker

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Bigger really is better.

Shares of memory chip maker Micron Technology (Nasdaq: MU  ) attest to that old adage today. They rose as much as 4.7% overnight on reports that the company has bid $1.5 billion for the assets of bankrupt rival Elpida.

The market-moving report comes from Taipei-based industry watcher DigiTimes and reinforces earlier observations from Japan's Nikkei daily. A $1.5 billion deal would most likely capture the entire company, but Elpida could also be sold in parts to a variety of buyers. That's what happened to Canadian networking equipment maker Nortel Networks back in the day, for example.

Other supposedly interested bidders include some familiar names and some less obvious ones:

  • Chip giant Intel (Nasdaq: INTC  ) backed out of the memory game years ago and now only makes some Flash memory products in a joint venture with Micron. Snagging Elpida could get Intel back in the memory saddle again, perhaps signaling the rise of integrated memory modules in desktop and mobile processors.
  • Chip manufacturing foundries Taiwan Semiconductor Manufacturing (NYSE: TSM  ) and former Advanced Micro Devices (NYSE: AMD  ) subsidiary Globalfoundries could buy at least some of Elpida's factories in order to expand their own production capacities. In this case, the plants might get converted from pure-play memory makers to more general-purpose facilities.
  • Toshiba and Formosa Plastics could use Elpida to grow their fairly small presences in the memory market. In particular, Formosa considered selling off its Nanya and Inotera memory brands in 2010, but then changed course and invested more money into Nanya late last year. That change of heart could inspire another big investment here.

Elpida is a huge name in DRAM chips that boasts plenty of high-profile customers but the company eventually collapsed under inefficient operations and a crushing debt load. Whoever wins this auction, set to close in May, will likely throw out what's left of Elpida's management and focus on putting its physical assets to good use. Expect cost-cutting and layoffs aplenty.

As a memory industry leader, Micron is an oblique play on the exploding smartphone and tablet markets. It's hardly the only top-notch smartphone bet, of course. Check out these three hidden winners of the iPhone, iPad, and Android revolution.

Fool contributor Anders Bylund owns shares of Micron but holds no other position in any of the companies mentioned. The Motley Fool owns shares of Intel. Motley Fool newsletter services have recommended buying shares of Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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  • Report this Comment On March 23, 2012, at 5:20 AM, winklerf wrote:

    Intel is probably interested in Elpida's memristor intellectual property. They don't want to get back into the low margin memory business, but they would be interested in memory that would reside in the metal layers instead of the substrate. If memristors work out, then the size of a microprocessor would be cut roughly in half since a lot of the area is dedicated to cache.

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