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Originally published July 2, 2012 at 6:09 PM | Page modified July 3, 2012 at 6:51 AM

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Micron's $750M purchase of Elpida strengthens its market position

The acquisition of bankrupt Japanese chip maker Elpida Memory would boost Boise-based Micron's wafer-manufacturing capacity by about 50 percent and double its share of the global market for dynamic random access memory chips.

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Micron Technology's purchase of bankrupt Japanese chip-maker Elpida Memory will give the Boise company a stronger foundation to challenge Samsung Electronics in the market for memory used in computers and mobile devices.

"We can see so many synergies and so many opportunities to really become a much stronger competitor in the memory space," Chief Executive Officer Mark Durcan said in a Bloomberg Television interview. "While we're not quite as big as Samsung, we are now, or will be on the close of this transaction, the clear No. 2 in the memory industry."

Micron agreed to buy Elpida for about $750 million in cash in a deal that would boost its wafer-manufacturing capacity by about 50 percent.

Acquiring Elpida, an Apple supplier, would double Micron's share of the global market for dynamic random access memory (DRAM) chips used in mobile phones and computers, to about 24 percent. The deal also expands Micron's offering into types of memory used in smartphones and tablets while giving it greater control over supply gluts that have caused it to report losses amid falling prices.

Micron and Elpida said Monday that the total value of their deal is about $2.5 billion, including about $1.75 billion in future annual installment payments that Micron would make through 2019.

Elpida has been developing a reorganization plan since filing for the largest manufacturing bankruptcy ever in Japan earlier this year. The deal will settle all of Elpida's debt.

Micron, the largest U.S. maker of computer memory, won approval from the Tokyo District Court in May to negotiate to buy Elpida's entire business after the Japanese company held two rounds of bidding. Monday's agreement is subject to court approval, which Elpida will seek in August, and sign-off from Elpida creditors. The transaction will close in the first half of 2013, Micron said.

"This is a transformative acquisition," said Dan Berenbaum, an analyst at MKM Partners who recommends buying Micron shares. "The structure of the deal is great," he added, noting that the upfront cash payment "is much lower than most were expecting."

Elpida had been struggling after years of sliding chip prices amid a glut of supply, punishing competition from Samsung, and weaker sales due to last year's flooding in Thailand that disrupted production.

But its business is improving, Micron Chief Financial Officer Ron Foster said. The transaction will begin to contribute to cash flow and earnings per share within 12 months, he said.

Under the terms of the deal, Micron is getting factories at less than one-third of the cost of building them from scratch, and expects to be able to reduce its spending on plants and equipment, said Durcan, the CEO.

In a related transaction, Micron also said Monday that it is buying Powerchip Technology's 24 percent stake in Rexchip Electronics for about $334 million. Elpida has about a 65 percent stake in Rexchip. Combined, this will give Micron Technology an 89 percent stake in Rexchip.

Micron stock closed up 24 cents, or 3.8 percent, at $6.55 Monday.

Information from Bloomberg News and The Associated Press is included in this report.

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