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Hynix, Micron discussing an alliance.

Byline: SHERRI BURI McDONALD The Register-Guard

After weeks of speculation, Hynix Semiconductor Inc. and rival computer-chip maker Micron Technology Inc. confirmed Monday that they are talking about forging a strategic alliance.

What form that might take isn't clear, but it could involve stock swaps, manufacturing agreements or technology sharing. Less likely would be a merger or a Micron takeover of Hynix, industry analysts said.

"Both companies are evaluating a broad array of strategic options," Steve Appleton, chairman and CEO of Boise-based Micron, and Chong Sup Park, chairman and CEO of Hynix Semiconductor in South Korea, said in prepared remarks.

The announcement is the latest twist for Hynix, which has 12 chip factories in Korea and a single U.S. factory in west Eugene. Pressured by poor markets and heavy debts, Hynix in July laid off 600 of its 800 workers at the Eugene plant. The company said it would rehire them by January after upgrading the plant to produce a more advanced chip.

Hynix says the upgrade is proceeding as planned. It has hired back some workers. At last count, the company said, the plant had more than 300 employees.

The talks between Hynix and Micron add more uncertainty about the fate of the Eugene factory, or fab as it is called in the industry.

"The Eugene fab is probably the one fab that's most at play because of its location," said Victor de Dios, a computer memory analyst at de Dios & Associates in Newark, Calif.

De Dios and several other analysts said Hynix's Eugene plant might be attractive to Micron because it's relatively close to Boise and is gearing up to have the latest technology.

A Micron spokesman did not return phone calls from The Register-Guard on Monday.

"The Eugene facility is Hynix's most modern," said Sherry Garber, DRAM analyst with Semico Research Corp. in Phoenix. "I would think of any of the facilities, it would be the most desirable to Micron."

But, Garber cautioned, little is known about the talks. The companies might not even be talking about factory acquisitions, she said.

Hynix appears to have more to gain from an alliance than Micron, analysts said.

Hynix, struggling with $6.8 billion in debt, has been on financial life-support for months.

Hynix lost nearly $3 billion in the first nine months of 2001 and it is working on its second multibillion-dollar bailout from creditors in six months.

However, Micron could benefit from a deal with Hynix if the arrangement curbed Hynix's chip production and enabled Micron to boost production when chip demand and prices rose again, some analysts reasoned.

Most analysts expect the market to start turning up next year and to grow quickly in 2003. The worldwide DRAM market currently is glutted with excess chip production and weak demand.

"Micron is probably just doing some exploring to see if they can get something for nothing, or for very little," said Brian Matas, vice president of market research for IC Insights, a market research firm in Scottsdale, Ariz.

During an earlier market downturn, Micron acquired the DRAM business of Texas Instruments.

A merger of Micron and Hynix - considered unlikely by industry analysts - would combine the world's second- and third-largest producers of DRAM. Together, the two companies had sales last year of about $12 billion, topping the $6.6 billion revenue of industry leader Samsung Electronics Co.

``Within a month, we will know whether a merger is possible,'' Hynix CEO Chong Sup Park said.

Some investors and analysts said Micron may balk at buying a money-loser with $6.8 billion of debt.

``Hynix is on the rocks,'' said Dan Scovel, a Needham & Co. analyst who has a ``buy'' rating on Micron shares. ``It's difficult to see where Micron would embrace the headaches of Hynix's financial situation.''

If Micron acquired Hynix, Micron would need to restructure and lay off workers in Korea, a country known for its strong labor unions.

"If that's not possible, I don't think Micron would be that interested," Gordon, the Dataquest analyst, said.

A merger or acquisition also would require converting Hynix's production processes to fit Micron's business procedures.

"That's going to be a major issue," Danny Lam, an analyst with FHI Inc.

If Micron decides to pass on a deal with Hynix, it's unclear what will happen to Hynix.

Analyst de Dios said the company could continue to sell off assets and pare back to its core business.

"They have more than a reasonable shot at surviving this thing," he said.

Dataquest analyst Gordon is less optimistic.

"If nothing is done to find some kind of partner for Hynix, I really think the only outcome is going to be a slow and painful death because the debt they're carrying is so massive" and the market conditions are so poor, Gordon said.

Bloomberg News contributed to this report.
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Title Annotation:Semiconductors: The talks add more uncertainty to the fate of the west Eugene chip plant.; Business
Publication:The Register-Guard (Eugene, OR)
Geographic Code:1USA
Date:Dec 4, 2001
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