Micron Wins Elpida - Analyst Blog

U.S.-based manufacturer of memory chips Micron Technology (MU) won the exclusive right to buy the bankrupt Japanese chip-making company Elpida Memory Inc. for 200 billion Yen, or $2.5 billion. Elpida was stuck with 448 billion yen in liabilities, forcing it to file for bankruptcy in February. Therefore, it was on the look-out for a suitable buyer. As per the terms of the deal, Micron has agreed to keep the two main factories of the company in Japan, which also comes with a guarantee to keep the current employees of the factory.

Micron received the acceptance of Elpida's trustees, but the final restructuring plan is yet to be approved by the local court and the creditors of the company. Micron/quotes/zigman/75433/quotes/nls/ won the deal after Hynix Inc of South Korea failed to grab Elpida.

We believe that this acquisition, if completed, would be inline with the company's strategy to expand its operation across the globe with special emphasis on Japan. Moreover, the technical know-how that the company gains from Elpida will be of much use to the company and will also help them understand the Japan market better.

Micron has recently regained its reputation, as the company came out successful in the lawsuit with Oracle, wherein Micron was accused of artificially increasing DRAM prices and violating the state's antitrust and unfair competition laws from August 1, 1998 to June 15, 2002.

The legal settlement is expected to protect Micron's reputation, despite the monetary loss to the company. This may in turn prove detrimental to third quarter results, widening the loss per share compared with our estimates. The quarter's revenue also came in below the year-ago level. The quarter even saw a decline in ASP.

Micron's second quarter results were disappointing as the net loss per share was wider than the Zacks Consensus Estimate. The quarter's revenue too came below the year-ago level. The quarter even saw declines in ASPs.

The cost-cutting measure could mitigate the adverse effect of ASP declines to some extent, going forward. Additionally, the drop in demand for laptops and desktop PCs may affect the demand for DRAM and RAM to a certain extent.

On the other hand, we believe that it won't be easy for Micron to take share from SanDisk Corp. (SNDK), as SanDisk is a key player in the NAND zone. However, the renewal of operations in Thailand may help the company going forward.

Micron Technology has a Zacks #3 Rank, implying a short-term Hold recommendation.


 
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