SAN JOSE, Calif. -- Micron Technology Inc.'s acquisition of NOR flash leader Numonyx Holdings B.V. this week is part of an ongoing diversification strategy by the U.S. memory maker.
In recent times, Micron (Boise, Ida.) has expanded into new markets by entering the microdisplay, solid-state storage (SSD) and solar markets. It has also spun off its CMOS image sensor unit and is toying with LEDs.
It is unlikely that those emerging product efforts will make a dent on the bottom line, but Numonyx (Geneva) will have an immediate impact. And in many respects, the Numonyx acquisition represents Micron's biggest gamble to date--and could make or break the U.S.-based memory maker.
As reported, Micron agreed to acquire Numonyx for $1.27 billion in stock. The long-awaited deal with Numonyx gives Micron a one-stop shop for memories that could rival Samsung Electronics Co. Ltd. Micron sells DRAMs, NAND flash and pseudo SRAMs. Numonyx sells NAND, NOR and a next-generation technology called phase-change memory (PCM). PCM is one of many technologies in the ''universal memory'' arena.
Still, faced with a declining product line in NOR and a bloated overhead, Numonyx could not have survived on its own over time. So in other words, the Numonyx deal could backfire and break fragile Micron. Indeed, the U.S. memory maker has recently reported its first profit in three years and the company is still reeling from the nasty downturn.
The big question is why would Micron buy a company that primarily sells a declining and bland product like NOR? First, perhaps Micron wants to extend its reach in the handset with NOR. Second, maybe Micron wants to gain access to Numonyx' next-generation PCM line, a technology that has generated interest from cell-phone giant Nokia Inc.
Or thirdly, perhaps Intel Corp. brokered this deal and Micron reluctantly agreed to appease its quiet partner. Intel is not only seeking an exit strategy with Numonyx, but it quietly wants to expand its leverage and influence inside Micron, observers speculated.
Intel, now a shareholder of Micron, has a NAND flash venture with Micron called IM Flash Technologies LLC. Separately, Intel and STMicroelectronics Inc. own a majority share in Numonyx.
The truth may lie in all three theories, but nonetheless, some analysts were caught off guard by the acquisition. ''We are a bit surprised by Micron's move to invest in a low-growth product category such as NOR flash,'' said Hans Mosesmann, an analyst with Raymond James Equity Research.
''We do not see much of a strategic importance in Micron's move to buy Numonyx. Therefore, the merits lie entirely on tactics and potentially the give-and-take of the Intel relationship,'' Mosesmann said in a report.
During a conference call, Micron was bullish about the deal. The U.S. company did not discuss the integration process. But clearly, Micron will most likely cut Numonyx' overhead and its headcount. ''We think this deal will make us stronger,'' declared Steve Appleton, chairman and CEO of Micron, during the conference call.
Appleton talks
It also advances Micron's diversification strategy, which is supposedly aimed to offset the brutal up-and-down cycles in its various product sectors. So far, however, that strategy has failed to pan out, as Micron has seen three years of losses until the most recent quarter.
At one time, the company had been a pure-play DRAM maker. In its most recent quarter, Micron's DRAM sales represented 46 percent of its total sales, the first time it has fallen below the 50 percent mark. NAND represented 30 percent of its sales and image sensors were 5 percent.
With the addition of Numonyx, NOR sales would represent 19 percent. During a presentation, Appleton outlined the deal with Numonyx. Formed in 2008, Numonyx is the memory spin-off of Intel and STMicroelectronics. STMicroelectronics holds a 49 percent stake in Numonyx, Intel has 45 percent and Francisco Partners owns 6 percent. The new venture is selling NOR, NAND and PCM, based on technology from Ovonyx Inc.
In its most recent quarter, Micron had sales of $1.74 billion, while privately-held Numonyx had $547 million. Numonyx is said to be cash-flow positive, but some believe the company is still in the red.
In total, Micron has 17,000 employees, while Numonyx has 6,400. Numonyx has a 200-mm fab in Israel and another 200-mm plant in Singapore. It has an R&D fab in Italy.
Numonyx also has a NAND development partnership with Korea's Hynix Semiconductor Inc., which will possibly end as a result of the acquisition. Numonyx and Hynix are also partners in an advanced, 300-mm memory fab in Wuxi, China. Numonyx has a 20 percent stake in the China fab.
Appleton said there are options to change the ownership of the fab venture in China. He did not elaborate, but many believe the Hynix-Numonyx partnership will end sooner than later.
Numonyx also has a foundry relationship with Japan's Elpida Memory Inc. That deal has not bore any fruit thus far and so many think that partnership will end as well. Both Hynix and Elpida are bitter rivals of Micron, it was noted.
Still to be seen, however, is what Micron will do with NOR. Numonyx is the leading supplier of NOR. It sells everything from a new 45-nm line to so-called Spansion-compatible parts. The 45-nm 1-gigabit monolithic device is based on the Numonyx' StrataFlash memory architecture and is drop-in compatible with its 65-nm NOR flash chips. Intel developed StrataFlash several years ago.
''Micron's goal is to become like Samsung, a one-stop shop for memory that has NAND, DRAM and NOR assets. NOR is the only part it lacks,'' said Daniel Amir, an analyst with Lazard Capital Markets, in a report. ''NOR flash is targeted to two major markets -- handsets (70 percent) and consumer electronics and PC (30 percent) -- both of which are markets where Micron has strong relationships for cross selling.''
But by buying Numonyx, Micron is re-entering the NOR flash market, a sizable but declining business that is under pressure from NAND. Ironically, Micron exited the NOR market in 2006, after it failed to gain traction against Intel and ST.
In NOR, Micron will compete against Macronix, Microchip, Samsung, Spansion and others in a sector that is expected to hit $4.497 billion in 2010, relatively flat from $4.409 billion in 2009, according to IC Insights Inc.
In 2010, NOR units are forecast to increase 13 percent, but the average selling price for these devices is forecast to fall 10 percent, resulting in 2 percent market growth, according to the firm. In comparison, the NAND market is expected to hit $18.807 billion in 2010, up from $15.416 billion in 2009.
