M&A Activity in the Chip Industry Continues
Intel will generate $9 billion from a NAND sale. SK Hynix will pay $7 billion initially and $2 billion upon a final closing, expected to occur in March 2025. Both companies expect to win government approval for the deal in late 2021.
NAND flash memory chips are used in tech devices like smartphones, hard drives, tablets, and so on. Intel plans to keep its advanced memory chip business, Optane.
“Per the agreement, Intel will continue to manufacture NAND wafers at the Dalian Memory Manufacturing Facility and retain all IP related to the manufacture and design of NAND flash wafers until the final closing,” it is said in the statement.
The takeover is just one in a series of major acquisitions in the chip industry this year. Last month, US graphics processing units producer, Nvidia (NVDA), announced its plan to buy the British chipmaker Arm for $16 billion.
Intel’s biggest competitor, Advanced Micro Devices (AMD), is also nearing an acquisition of Xilinx (XLNX), a deal that could be worth over $30 billion, as reported by The Wall Street Journal earlier.
Intel’s decision to sell its NAND business comes as a result of a challenging year for the California-based chipmaker. Back in July, Intel announced the postponement of the production of its 7-nanometer chips and admitted it was having a hard time with the production of the next generation of advanced chips.
On the other hand, its competitors such as Taiwan Semiconductor Manufacturing Company (TSM) and Samsung have managed to manufacture their chips and started selling them.
However, Intel remains the leader of the semiconductor industry and is still the only American chipmaker on the same level as TSMC and Samsung regarding designing and producing the leading-edge chips.
Tens of Billions of Dollars Spent
All of the leading chipmakers are spending immense amounts of money to stay on top. It is estimated that American chipmakers invested $72 billion in research and development as well as capital spending in 2019, almost two times higher than the $40 billion they spent in 2007.
Bob Swan, Chief Executive of Intel, said that selling the NAND business will allow the company to “further prioritize our investments in differentiated technology where we can play a bigger role in the success of our customers and deliver attractive returns to our stockholders.”
Also, escalating disputes between the US and China may have pushed Intel into selling its NAND chip factory in China, analysts say. The decision came only a month after the Japanese called off its initial public offering (IPO) due to market uncertainty.
Bob Swan has said that his company plans to strip non-essential businesses. Last year, the chipmaker sold its 5G modem unit to Apple.
In the quarter from April to June, the NAND flash sector saw a sharp growth due to a higher demand for personal computers and servers as the coronavirus pandemic compelled millions of people to work remotely, said market intelligence provider Trendforce.
At the moment, SK Hynix is ranked fourth in the NAND memory chip industry and second-best when it comes to DRAM memory sales, behind Samsung. The NAND memory chip market is led by Samsung, which accounts for 31.4% of the total market share, in front of Kioxia with 17.2%, SK Hynix with 11.7%, and Intel and Micron with 11.5% each.
However, purchasing Intel’s NAND business will move SK Hynix up to second place and give it a total market share of 23.2%.
“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,” said Lee Seok-hee, President and Chief Executive of SK Hynix, in today’s statement.
Intel is selling its NAND memory chip business to SK Hynix in a $9 billion deal. The deal is expected to close in 2025 and will make SK Hynix the second-biggest NAND memory chipmaker in the world with a total market share of 23.2%, behind Samsung.