Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

South Korea's SK Hynix to buy Intel's NAND business for $9 billion

Published 10/19/2020, 02:05 PM
Updated 10/20/2020, 01:17 AM
© Reuters. FILE PHOTO: U.S. chipmaker Intel Corp's logo is seen on their "smart building" in Petah Tikva, near Tel Aviv

By Hyunjoo Jin and Stephen Nellis

SEOUL/SAN FRANCISCO (Reuters) - Intel Corp (O:INTC) has agreed to sell its NAND memory chip business to SK Hynix Inc (KS:000660) for $9 billion in an all-cash deal that would propel the South Korean chipmaker to second in the global rankings.

The move marks the latest effort by the U.S. chip giant to divest its non-core businesses, move away from the volatile commodity NAND chip industry and focus on its remaining Optane memory business, which is smaller but more lucrative because it taps more advanced technology.

It is the biggest acquisition to date for SK Hynix and follows its $3.7 billion investment in Japanese rival Kioxia in 2017, as the Korean firm tries to boost its capacity to build NAND chips - used to store data in smartphones and data centre servers - and beef up its pricing power.

The deal will help SK Hynix overtake Kioxia <6600.T> in the NAND memory market while narrowing the gap with market leader Samsung Electronics (OTC:SSNLF) Co Ltd (KS:005930).

SK Hynix shares jumped immediately after the news before valuation concerns saw them reverse gear to fall 2%, while the wider market (KS11) was down 0.7%. Samsung Electronics gained 1%.

"Shareholders are negative about the deal because they believe the price is too expensive. It's good news for other memory chipmakers, because the move would lead to industry consolidation," said Lee Seung-woo, an analyst at Eugene Investment & Securities. 

SK Hynix said Intel would sell all of its NAND business including its solid-state drive business, NAND component and wafer operation, and its factory in Dalian, China.

Intel would keep its advanced Optane memory technology, developed in partnership with Micron Technology Inc (O:MU), which makes the Optane chips for Intel under a supply agreement.

The Intel division which includes its NAND and Optane businesses posted a fourth consecutive annual loss in 2019, although it swung to a profit in the first half of this year. SK Hynix has also posted losses in its NAND business.

TRADE WAR

Analysts said U.S-China tensions may have influenced Intel's decision to sell its NAND flash memory factory in China. The moves comes a month after Kioxia cancelled a planned initial public offering amid market uncertainty.

Intel's Dalian factory makes chips that compete in the cut-throat commodity memory business where prices cycle through booms and bust that can eat profits.

"This transaction will allow us to further prioritise our investments in differentiated technology," Intel CEO Bob Swan said in a statement.

Swan has told investors he plans to divest non-core businesses. The company earlier sold its 5G modem business to Apple Inc (O:AAPL).

SK Hynix said the companies aimed to obtain government approvals in late 2021, and close the deal in March 2025.

PANDEMIC-DRIVEN DEMAND

The Nand Flash industry grew in the April-to-June quarter thanks to robust demand for PCs and servers as the COVID-19 pandemic forces millions of people to work from home, according to market researcher Trendforce.

SK Hynix, which counts Apple and Huawei Technologies Co Ltd as customers, is a distant fourth in the NAND memory chip market, although it ranks second after Samsung Electronics in DRAM memory sales.

Samsung is the leader in the NAND flash market with a 31.4% share, followed by Kioxia with 17.2%, SK Hynix with 11.7%, and Intel and Micron (O:MU) with 11.5% each.

With the acquisition, SK Hynix, part of South Korean conglomerate SK Group, will have a market share of 23.2%.

© Reuters. Employee walk past the logo of SK Hynix at its headquarters in Seongnam

"Although the competitive environment surrounding us is not easy, we have made a bold decision to pave the way for our leap toward securing a firm position in the NAND business as in DRAM," SK Hynix President and CEO Lee Seok-hee said in a statement.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.