Micron deal lays groundwork
When Micron cut a deal to acquire the memory manufacturing assets of TI, it was thinking about the market in 2000, when the present glut is expected to dissipate.
By then, the memory glut is expected to be gone, according to analysts, making the DRAM memory chip business once again a profitable venture. Most manufacturers, who have curtailed memory investments, will likely be scrambling to acquire plants and invest in manufacturing capabilities.
Except for Micron. Under the TI deal, Micron is acquiring rights in four different fabrication facilities, an assembly plant, and a number of patents, a total package that is worth approximately $3 billion. These assets may become dormant for now, but will likely give Micron a significant advantage over competitors in the near future.
"This makes Micron the No. 2 DRAM manufacturer in the world," said Jim Handy, memory analyst at Dataquest. The combined TI-Micron DRAM revenues for 1997 come to $2.93 billion, leapfrogging NEC and lagging behind only Samsung "The street value of the stock is only $800 million. That is really cheap for four 'fabs,'" Handy said.
"There is probably $3 billion worth of facilities in the deal," said Brian Matas, vice president of market research at IC Insights. "This will make them a huge supplier."
Micron and IBM now become the only large DRAM manufacturers left in the U.S.--and IBM is scaling back manufacture of these chips, shifting some production lines to more lucrative specialized chips and processors. Intel got out of the memory chip business in 1986.
Even prior to the anticipated market recovery, the move marks the latest step in Micron's effort to imprint its own worldview on the volatile and often nationalistic memory market.
Micron places a much stronger emphasis on cutting-edge technology than its competitors as a way to keep costs down costs, said Handy. The effort generally goes in two directions. Micron works to reduce the size of memory chips so that more can be produced from a single silicon wafer and then works to shorten the time between manufacturing and shipping.
"They have close to a fetish for squeezing out the cost of everything they make," said Handy. "And they will make mare frequent changes to their manufacturing."
The company is also notorious for accusing Korean manufacturers of "dumping" chips in the United States, or selling them below their market value. Micron has filed a number of cases with the federal government against other manufacturers over the past few years. Although the suits have never implicated big competitors such as Samsung, Micron has shown few signs of relenting on its legal strategy.
The TI deal will likely start to deliver tangible results in the near future, said Handy. Over the past few years, memory manufacturers have over-invested in plant capacity, leading to a massive surfeit of chips. Both 64MB and 16MB chips are selling below manufacturing costs. Demand, however, continues to increase and will likely eclipses the excess factory capacity problem by 2000.
While the rise in demand will be good for all manufacturers, it will be especially good for Micron. Samsung, among other makers, suspended investment in late 1997 when the Asian currency crisis hit. Plant investments typically have to be made two years in advance of production.
As a result, Korean vendors will not have the capacity in 1999 or even 2000 to match the upswing in demand. Micron will have capacity because of the TI deal.
"In the long term, this will work to their advantage," said Matas.