Memory Market Consolidation 101
By
Anders Bylund (TMF Zahrim)
September 23, 2008
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Technology analysts are telling their clients that Micron (NYSE: MU) is about to buy rival memory-chip maker Qimonda (NYSE: QI).
Rumors of this deal have been bouncing around the Web for weeks, but now investors are taking them seriously. Doug Freedman of American Technology Research sees manufacturing synergies as Micron's customer base overlaps with Qimonda's in a geographical sense, but the German minnow is in such financial trouble that the final buyout price could be as low as $1 a share. That's less than half of last night's closing price, and Qimonda's stock is drifting downward today.
Gregory Wong of Forward Insights thinks a more limited deal is in the works. Infineon Technologies (NYSE: IFX), which owns 77% or Qimonda, could sell off its interest in the memory-chip operation to Micron, but Wong doesn't have a deal price in mind.
Whether it goes for a full buyout or a simple controlling stake, a Qimonda deal makes sense for Micron. The fragmentation in the current memory-chip market has led to price wars among scores of competitors. Since nobody wants to back down, chip prices have been in freefall for a couple of years. AMD (NYSE: AMD) spun out its flash-memory operations as Spansion (Nasdaq: SPSN) to get some insulation from this brutal exchange of body blows, and Intel (Nasdaq: INTC) spit its memory unit out in a joint venture with STMicroelectronics (NYSE: STM), for much the same reason. Better to leave this battlefield to the dedicated memory experts.
In the long run, consolidation could boil the memory market down to just a couple of large suppliers with the power to put an end to the bloodbath. And believe me, they all want this. Micron's market cap is about a mere quarter of what it was two years ago, and that's still better than Qimonda's share price implosion of more than 80%. I don't care whether Freedman or Wong is more right, as long as one of them hits the mark -- for the sake of memory-maker investors in general.
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