SK hynix ready to build ‘chip empire’

21-Oct-2020 Intellasia | KoreaTimes | 6:02 AM Print This Post

SK hynix came out with a surprising announcement on Tuesday morning that it inked a deal to acquire US chip giant Intel’s NAND business for $9 billion. It is the largest overseas acquisition deal ever inked by a Korean company, surpassing Samsung Electronics’ $8 billion acquisition of Harman back in 2016.

Despite the confirmation, SK hynix shares retreated by 1.73 percent to end at 85,200 won per share on the nation’s major KOSPI market, according to data by the bourse operator Korea Exchange.

Analysts expect the acquisition deal to become a win-win for SK and Intel, as the Korean company will be able to strengthen its enterprise solid-state drive (SSD) business and consequently solidify its position as the world’s leading memory chipmaker in both DRAM and NAND memory businesses following Samsung Electronics.

SK hynix is clearly looking good and it is one of the top beneficiaries in the global memory chip game as the industry is experiencing rationalisation with its top three players including the market leaders Samsung and Micron Technology. But its NAND business has been a headache. Its ranking in the NAND flash sector stagnated in the second-tier level as it came to market late.

Business circles in Korea said the mega decision was SK Chair Chey Tae-won’s ambitious bet to help the group’s chip business go to “another level.” Following SK’s acquisition of Hynix Semiconductor in 2012, SK has been consistent in massive investments to bolster its profile in the global memory industry. In 2018, SK bought stakes in Japan’s Toshiba followed by a series of acquisitions which were renamed as SK materials and SK siltron. The attempts helped the group see a vertically integrated business structure.

SK hynix generated more than 60 percent of its total NAND flash revenue from the mobile market last year and had shown relatively weak performance in the enterprise SSD market, which has higher profitability than NAND for mobile devices.

Intel sees cut in memory profits

The acquisition deal will cover the entire acquisition of Intel’s NAND flash business and its manufacturing factory in Dalian, China, which is designed to produce 3D NAND flash memory chips. The Korean chip maker will be able to focus more on the rapidly growing enterprise SSD market. Also, given Intel has more than a 50 percent share of the enterprise SSD market in China, the acquisition deal will help SK hynix improve the competitiveness of its NAND business.

“The merger between Intel’s NAND flash business and SK hynix will allow the latter to benefit from the complementary technologies, especially in the enterprise SSD market. Broadly speaking, this marks the next chapter of reorganisation for the NAND flash industry,” according to a report from market researcher TrendForce.

“SK hynix has an advantage in the mobile market, including embedded multi-chip package (eMCP) and embedded multi-media controller (eMMC) products, accounting for more than 60 percent of SK hynix’s total NAND flash revenue in 2019. On the other hand, Intel has been performing superbly in the enterprise SSD market. Not only is Intel on par with Samsung in enterprise SSD, but it has also captured more than 50 percent of the Chinese market,” TrendForce added.

In terms of production capacity, SK hynix will have the second-largest market share in the NAND business after Samsung. According to market researcher Omdia, Intel held the fourth-largest market share of 11.5 percent in the NAND sector in the second quarter while SK hynix was the fifth with 11.4 percent.

“By acquiring Intel’s NAND business, SK hynix can emerge as a strong player in the enterprise SSD sector, which has been regarded as the biggest vulnerable point of the company, and solidify its position as No. 2 player in the memory chip industry,” Eugene Investment said.

By selling its NAND business to SK hynix, analysts said Intel could be able to solely focus on developing logic chips that can be increasingly used in advanced technologies such as artificial intelligence (AI), fifth-generation (5G) networks and autonomous driving.

Analysing the reason why Intel decided to sell its NAND business to SK hynix, Jim Handy, a US-based analyst working for Objective Analysis, said Intel came to the conclusion because the memory business reduces its profit margin.

“The reason that Intel has exited earlier memory markets is because the margins for memory chips swing wildly from positive to negative, and in most years memories reduce the company’s margin. There is little reason for Intel to participate in this crowded and competitive field since other producers are very willing to undergo the market’s cycles and to accept its low average margins,” he said.

“Intel needed to enter the memory business first with NAND flash in 2004 and then with 3D XPoint in 2015 to control the memory that their processors needed. Now that 3D XPoint has reached break-even, Intel can convince a memory maker to take over.”

The analyst added that China-based memory chip maker Yangtze Memory Technologies (YMTC) might want to take over Intel’s NAND business as part of the Chinese government’s push for the production of its own semiconductor chips, but the trade war between the US and China has prevented that.

https://www.koreatimes.co.kr/www/tech/2020/10/133_297894.html

 

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