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Micron-Elpida Finalized Merger Will Exert Considerable Impact on DRAM Industry

08 May 2013

U.S.-based Micron Technology could become the No. 2 or No. 3 player in the dynamic random access memory (DRAM) market when its merger with Elpida Memory finalizes later this quarter, a weighty development that could also significantly redraw the DRAM landscape and pose long-term implications for the health of the entire industry, according to an IHS iSuppli DRAM Dynamics market brief from information and analytics provider IHS.

Micron is currently the No. 4 DRAM producer, a position it has held more or less continuously since at least 2007. The only memory manufacturer operating in the United States, Micron has perennially labored under the shadow of more agile and prolific DRAM producers like Samsung Electronics and SK Hynix, both of South Korea; and Elpida from Japan, which declared bankruptcy last year after heavy debts and was then immediately snapped up by Micron. Micron's DRAM market share has hovered in the 10 to 12 percent range over the years, but its finalized merger with Elpida sometime in the second quarter would give it an additional 12 to 13 percent share.

That would put Micron in an entirely new place in the DRAM hierarchy-at least third overall, or even in the mighty runner-up position as a challenger to the currently impregnable Samsung. In the fourth quarter last year, Samsung controlled 42 percent share of DRAM industry revenue while SK Hynix held 26 percent share. Elpida was third with 14 percent, followed by Micron at 11 percent. The remainder was in the hands of smaller DRAM producers based in Taiwan, such as Nanya Technology and Winbond Electronics.

Based on those latest figures, a merged Micron-Elpida entity would rule 25 percent of the market, or just 1 percentage point below No. 2 SK Hynix. However, if third-quarter figures were used as reference, the newly merged colossus would have been in second place at a combined 25 percent, 1 percentage point above the 24 percent share of SK Hynix.

What a Micron-Elpida merger would mean for the DRAM space

More than a year in the making, the finalized merger would mean that just three full-spectrum DRAM developers are left. Together, Samsung, SK Hynix and Micron will make up more than 90 percent of the DRAM market.

The industry will be healthier after the consolidation, plagued as it has been in the past by painful cyclicality since its earliest days. All three developers after the merger will have the requisite size-each with at least 15 percent share of market-to fund research and development efforts, resulting in less motivation for all-out market-share battles that many agree leave the industry bloodied and in disarray.

And because each producer is also in the business of manufacturing more lucrative NAND flash memory, no new DRAM fabs are likely to be built over the next several years, which would add to the risk of DRAM overcapacity and drive down pricing.

DRAM products would also become increasingly tailored for each application, paving the way for better margins and more predictable demand.

Micron gains benefits-and the challenge ahead

Micron's finalized acquisition of Elpida brings it immediate benefits. Elpida has a product line for mobile DRAM-one of the hottest segments in DRAM at present, as the memory type is used for consumer favorites like smartphones and tablets-which Micron lacks. Elpida also brings some critical manufacturing technology to the table and adds more wafer capacity, a prerequisite for Micron if it wishes to become a top supplier to clients.

Micron's challenge is to properly carry out all the pieces of the soon-to-be-completed integration. Unlike its competitors, Micron has facilities spread all over the world, and its two other acquisitions in Taiwan's Rexchip Electronics and Inotera Memories have resulted in a patchwork of products. Integrating all these disparate parts will be critical to determining Micron's future success, but an effective integration will give Micron a stronger product portfolio.

Still, the onus is now heavier on Micron, as Samsung and SK Hynix only need to continue what they've already been doing for the last few years to maintain success. Micron has a real chance to join the players at the top, but its journey has just begun.

Read More >> The Impact of the Micron/Elpida Consoldiation



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