Micron To Acquire Elpida For $2.5 Billion

And then there were 5.

For the better part of a year now the DRAM industry has been in a lurch due to low prices. As a result of soft demand exacerbated by the hard drive shortage and a corresponding glut in supply, DRAM prices have become severely depressed, to the point where even 16GB of PC DRAM can regularly be found for under $90 and 8GB of RAM for as little as $40. And though Moore’s Law puts constant downward pressure on DRAM prices, on a historical basis healthy DRAM pricing shouldn’t drop this quickly this fast.

Because of this extremely weak pricing all of the major players in the DRAM industry have been struggling to stay afloat – just breaking even is a big deal – which has led to a series of cutbacks and delays in future build outs. However even that hasn’t been quite enough, and as we’ve seen time and time again in during major slumps in commodity technology industry, the rising tide of red ink has come to claim another.

The victim this time is Elpida, one of the smaller DRAM manufacturers. After filing for bankruptcy earlier this year the company has finally accepted a buy-out offer from Micron, who has been looking to take advantage of this slump to purchase more capacity and increase their competitiveness with the other major players in the DRAM market. As a result of the deal Micron will pay Elpida shareholders a total of nearly 2.5 billion dollars, paid out as $750M upfront and then annual installments through 2019. In turn Micron will acquire Elpida and its assets, allowing the company to expand their DRAM production by nearly 50% for a fraction of the price of building new facilities of their own.

This acquisition is primarily about jockeying for position among the remaining DRAM manufacturers – Samsung, Micron, Hynix, Winbond, and Nanya – ahead of a cyclical recovery in the highly volatile DRAM market. The acquisition will boost Micron to the 2^nd largest DRAM manufacturer (between Samsung and Hynix), while putting Winbond and Nanya in competition for 4^th and 5^th place. At the same time Elpida has a strong presence in the mobile DRAM market with memory types such as LPDDR2 and DDR3L, which in turn will give Micron a much stronger position in those markets as opposed to the more cutthroat PC DRAM market.

Ultimately major slumps in the DRAM market are usually followed by major booms, and this should be no different. A typical recovery pattern means that once demand recovers the current lack of investment in new facilities will bottleneck supply, which is where these acquisitions typically pay for themselves. At the same time five players is still a larger number than what we see in most other commodity component industries (e.g. hard drives), so there’s no guarantee that the next slump won’t also consume a DRAM manufacturer.

Source: Associated Press

Update: In our attempt to count the remaining DRAM manufacturers we forgot about Nanya. Sorry about that, guys.