Micron (NASDAQ:MU) recently announced that it has exercised its call option to acquire Intel’s (NASDAQ:INTC) 49% stake in IM Flash Technologies, a joint venture of both companies. The buyout has been settled at $1.5 billion and is expected to close within the next six to twelve months.
Per mutual agreements, Intel will buy 3D XPoint memory wafers from Micron for up to a year after the deal closes, post which, IM Flash will become a wholly-owned subsidiary of Micron.
Micron tied up with Intel to develop new memory technologies back in 2006, thus forming IM Flash Technologies. In 2015, this collaboration yielded the 3D XPoint technology, which is widely used in high-end computers and data centers. Based on this technology, Intel launched Optane, its NVM (non-volatile memory) product.
Justification of the Deal
Micron’s intention to take over the joint venture was announced last October. The deal will enable Micron to ramp up 3-D Xpoint production and give the company full flexibility to innovate on the technology and develop next-generation tech tools.
Sanjay Mehrotra, president and CEO, Micron Technology, was quoted saying, "The IM Flash acquisition will enable Micron to accelerate our R&D and optimize our manufacturing plan for 3D XPoint…"
The company stated that the transaction will not have any significant impact on its non-GAAP results or capital expenditure expectations. This is because the purchase has already been included in the company’s most recent financial statements.
Morever, the deal will eliminate IM Flash’s member debt ($1 billion as of Nov 29, 2018) from Micron’s balance sheet. As of Nov 29, 2018, Micron’s long-term debt was $3.73 billion, down from $3.78 billion sequentially.
Moreover, the company informed that the 1,700 strong workforce of IM Flash is not likely to be affected by this strategic move.
Financial Footing
Micron has a strong cash flow generating ability, which helps it make strategic acquisitions and invest in new products. The company generated approximately $17.4 billion of cash flow from operational activities in fiscal 2018. Micron had exited the first quarter of fiscal 2019 with almost $8 billion in revenues and $5.563 billion cash and short-term investments.
However, in the last reported quarter, revenues from the Storage Business Unit (SBU) comprising SSD NAND components and 3D XPoint summed $1.14 billion, down 17% on a year-over-year basis and 8% sequentially, owing to low pricing and the ongoing transition from SATA to NVMe SSDs. It remains to be seen whether the purchase of IM Flash can revive the fortunes of this particular business segment.
Zacks Rank & Stocks to Consider
Micron currently carries a Zacks Rank #5 (Strong Sell) while Intel has a Zacks Rank #3 (Hold).
Two better-ranked stocks in the broader Computer and Technology sector are Synopsys, Inc. (NASDAQ:SNPS) and Marvell Technology Group Ltd. (NASDAQ:MRVL) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate for Synopsys and Marvell is projected to be 10% and 9.38%, respectively.
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