Dow Jones Top Stories 5:17 pm March 8, 2006

Micron Technology Inc.`s (MU) acquisition of Lexar Media Inc. (LEXR) will give the memory chip maker a much needed way to distribute NAND flash memory chips.

The deal, which was announced earlier Wednesday, values Lexar, which makes memory chips used in digital media players and digital cameras, at around $690 million.

Under terms of the deal, Micron will exchange 0.5625 a share of its stock for each Lexar share.

Micron, based in Boise, Idaho, has been making a major push into the NAND flash memory chip market, recently announcing a joint venture with Intel Corp. (INTC) to make the chips. The companies also announced their first customer is Apple Computer Inc. (AAPL), which is paying $500 million for NAND chips through 2010.

Analysts said before the Lexar buy Wednesday, the top concern for Micron`s NAND efforts centered on where to sell the chips. While Apple is a formidable customer, the only two players in the NAND flash memory market, which is predominately a consumer play, are Sandisk Corp. (SNDK) and Lexar. Micron and Intel are jointly producing the chips but will distribute them independent of each other.

``The biggest risk would be how to sell these things,`` said Eric Ross, an analyst at ThinkEquity. ``They answered that by buying a robust distribution channel.``

According to Ross, who doesn`t own shares of Micron and Lexar, the acquisition is also a win for Lexar, which had used Samsung Electronics Co. (005930.SE) as its supplier in the past. ``It`s a more profitable venture for both of them,`` said the analyst, noting that the loss of Lexar could hurt Samsung, but not dramatically.

Michael Sadler, vice president of worldwide sales at Micron, said gaining access to Lexar`s distribution channel was a ``significant motivation.`` He said the acquisition gives Micron direct access to the consumer market for its NAND flash memory chips. ``It rounds out our capabilities,`` said the executive, noting that Lexar was missing the manufacturing piece of the equation, which this deal addresses.

Recently, shares of Micron were trading down 3%, or 42 cents, to $14.55 on volume of 16.2 million shares. Average daily volume is 10.2 million shares.

Meanwhile, shares of Lexar were recently up 21%, or $1.49, to $8.58 on heavy volume of 49.6 million shares. Average daily volume is 3.5 million shares.

Competitor Sandisk saw its stock fall 6%, or $3.57, to $52.96 on volume of 9.9 million shares. Average daily volume is 13.2 million shares.

While Wall Street is generally positive on the deal, there are concerns that it may not close. Doug Freedman, an analyst at American Technology Research said there is a chance that Samsung of Hynix Semiconductor Inc. (000660.SE) could make a higher bid for Lexar. He noted that Micron is gaining a ``inexpensive way`` to distribute its chips.

As for the potential for Sandisk to be a target, Freedman said it`s not likely since Sandisk would require a hefty price tag and already has a supplier for its chips.

Micron`s Sadler said that when putting together the deal Micron contemplated the idea that another suitor could step up to the plate, but declined to comment on what Micron would do in that case.

``Whether someone does or not, we can`t speculate,`` said the executive.