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Business deals

SK Hynix to buy Intel's NAND memory unit for $9bn

Biggest M&A by a South Korean company is set to transform chipmaking landscape

South Korea's SK Hynix said on Oct. 20 that it will acquire Intel's memory chip unit in a potentially industry-shaking deal. (Source photos by Reuters)

SEOUL -- SK Hynix announced Tuesday that it has signed a deal to buy U.S. chipmaker Intel's NAND memory unit for $9 billion, an acquisition that is set to catapult the South Korean company into the No. 2 spot in the global NAND market.

The deal -- the largest M&A by a South Korean company -- covers Intel's NAND memory and storage business and manufacturing facility in Dalian, China.

"I am pleased to see SK Hynix and Intel's NAND division ... work to build a new future together," SK Hynix CEO Lee Seok-hee said. "SK Hynix will proactively respond to various needs from customers and optimize our business structure, expanding our innovative portfolio in the NAND flash market segment, which will be comparable with what we achieved in DRAM."

NAND flash memory is a crucial memory component used mainly for storage, is found in almost all kinds of electronic devices, from smartphone to PCs to servers.

Under the terms of the deal, SK Hynix will pay $7 billion late next year for Intel's NAND SSD business and the Dalian facility. The remaining $2 billion will be paid in March 2025 to take over Intel's intellectual property related to the manufacture and design of NAND flash wafers, R&D employees and the Dalian fab workforce.

The two companies say they are aiming to receive regulatory approval for the deal by late 2021, with SK Hynix adding that it does not expect any major hurdles in the antitrust review preview.

"Even after the acquisition, our NAND market share will not be that huge. We believe that the authorities will understand the deal will contribute to developing the whole NAND ecosystem globally," an SK Hynix spokesperson said.

The South Korean chipmaker plans to apply for approval from governments in China, the U.S. and South Korea, according to TrendForce.

SK Hynix said it will have no problem paying for the acquisition, as it has abundant cash reserves and can borrow money easily. The company's cash and cashable assets stood at 3.9 trillion won ($3.4 billion) as of June.

When SK Hynix proposed a U.S. dollar note last year, credit ratings agency Moody's assigned it a Baa2 rating, indicating moderate risk, with a negative outlook.

According to an industry source familiar with the deal, SK Hynix has been considering buying Intel's NAND unit since last year when the U.S. chipmaker began sounding out companies for a possible sale.

"I am sure that any company would have been interested in the deal," the source said, but added that it took more than a year for SK Hynix and Intel to reach an agreement because there were so many details to discuss.

The mega deal comes as SK Hynix is attempting to strengthen its presence in the NAND sector, following its success in DRAM. The company said it aims to enhance the competitiveness of its storage solutions, including enterprise-use solid-state drives, or eSSD, in the rapidly growing NAND flash space.

The move could also help SK Hynix fend off growing competition. Yangtze Memory Technologies, China's first homegrown NAND flash memory chip maker, has a production roadmap that, if successful, would see it threaten Intel's market position as early as next year.

For Intel, the deal is also a means of unloading an underperforming unit. Though it is currently the world's sixth-biggest maker of NAND flash memory, Intel's margins in that business have long underperformed its other product lines, such as PC and server processor chips, of which it is the world's leading maker.

In announcing the acquisition, SK Hynix said it aims to lift its NAND business to the same level as its DRAM operations by both expanding its market share and increasing profitability. The company is the world's second-largest DRAM chipmaker, with a market share of 30.1%, behind only Samsung Electronics, at 43.5%.Analysts say that the deal will open the new chapter for the NAND industry as SK Hynix will benefit from Intel's complementary technologies.

"The merger between Intel's NAND Flash business and SK Hynix will allow the latter to benefit from the complementary technologies, especially in the enterprise SSD market. Broadly speaking, this marks the next chapter for reorganization for the NAND Flash industry," TrendForce said in a note.

The deal will make SK Hynix the second-biggest player in the global NAND market, behind Samsung Electronics, which had a 31.4% share of the market in the second quarter, according to Statista. SK Hynix and Intel held an 11.7% and 11.5% share, respectively.

In addition to raising SK Hynix's NAND profile, the deal is also expected to help stabilize the broader NAND industry by reducing excessive investment.

"The lesson we've learned in the history of memory chip is that consolidation is good news," said Lee Seung-woo, an analyst at Eugene Investment & Securities. "In addition, SK Hynix will take a chance to emerge as a new powerhouse in eSSD, following Samsung. So, we believe this bet is worth trying."

Despite company and analyst optimism, shares of SK Hynix closed down 1.73% on Tuesday amid worries over the cost of the massive investment.

Samsung Electronics, the world's largest memory chipmaker, declined to comment on the deal.

Additional reporting by Cheng Ting-Fang in Taipei

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