By Cara Lombardo and Dana Cimilluca
Intel Corp. has reached a deal to sell its flash-memory
manufacturing business to South Korea's SK Hynix Inc. for about $9
billion, in a move that would reorient the semiconductor giant away
from an area of historical importance that has become increasingly
challenged.
The Intel unit makes NAND flash memory products primarily used
in devices such as hard drives, thumb drives and cameras. The U.S.
chip maker has been weighing getting out of the business for some
time, driven by sagging prices for flash memory.
Under the deal reporter earlier Monday by The Wall Street
Journal, SK Hynix plans to buy most of Intel's memory business,
including the related memory manufacturing operations in Dalian,
China, the South Korean company said in a statement. Intel will
keep its Optane line of memory products, an advanced type of
storage used heavily in data centers.
The deal would make SK Hynix one of the world's largest NAND
memory makers. SK Hynix and Intel's combined market share was more
than 20% in the second quarter, according to Taiwan-based research
firm TrendForce, trailing only South Korean giant Samsung
Electronics Co., which held over 30% of the market.
While Intel is best known for making the central processing
units at the heart of personal computers, the company has deep
roots in the memory business. It started as a memory manufacturer
in the late 1960s before stiff competition from Japan's burgeoning
electronics industry in the 1980s led the company to change
course.
The market for memory chips slumped in 2018 amid an oversupply
of the devices, though it began to recover late last year. Analysts
expect the market for NAND devices to remain strong in the coming
years amid a surge in data storage.
Nonetheless, Intel Chief Executive Bob Swan said in April that
the company had to generate more attractive returns from the NAND
business and suggested it could enter into a "partnership" to make
that happen.
George Davis, the California-based company's chief financial
officer, said in March that while there were growing markets for
flash memory, including in huge data centers, "We haven't been able
to generate the profits out of that to get the kind of returns that
we would like to see."
Intel already pared down its involvement in memory manufacturing
in January when Micron Technology Inc. bought out Intel's share in
a joint venture for about $1.5 billion. That venture was focused on
an advanced memory technology called 3D XPoint.
Intel, which has a market value of roughly $230 billion, has
been under increasing pressure as smaller rivals gain market share.
Its stock is down about 10% this year, compared with a roughly 30%
rise in the PHLX Semiconductor index. The shares dropped more than
15% when Intel in July indicated that second-half results would be
weaker than expected and revealed further delays in the rollout of
its superfast seven-nanometer chip technology, which underlies
future generations of central processing units.
While Intel has struggled to move into mass production of its
most advanced chips, rival Advanced Micro Devices Inc.'s market
share in personal computer CPUs climbed above 17% in the first
quarter, more than doubling from five years earlier, according to
Mercury Research. Intel holds almost all of the remaining market
share.
Intel is set to report its third-quarter earnings Thursday
afternoon.
The market for memory chips has been shaken by U.S. efforts to
curb the rise of China's tech industry and restrict exports to
Chinese firms such as Huawei Technologies Co., the country's
leading telecom equipment maker. Japanese memory-chip maker Kioxia
Holdings Corp., owned by a consortium led by private-equity firm
Bain Capital, last month delayed one of this year's most
anticipated public offerings because of the situation.
Intel's advanced flash memory, referred to as 3D NAND because it
has multiple layers of memory cells stacked on top of each other,
has been produced for the past five years in Dalian, a port city on
the Liaodong Peninsula just west of the Korean Peninsula.
That factory is Intel's only major chip-manufacturing site in
China and its sale to SK Hynix would mark a serious reduction of
the company's presence there.
The U.S. has been ratcheting up pressure on Chinese chip-making
recently, including by requiring companies to obtain licenses
before exporting some technology to China's most advanced chip
maker, Semiconductor Manufacturing International Corp.
Consolidation has swept through the semiconductor sector as
industry players seek scale and expand their product portfolios to
support the increasing number of everyday items that are connected
to the internet.
Analog Devices Inc. in July agreed to pay more than $20 billion
for Maxim Integrated Products Inc., and Nvidia Corp. in September
agreed to pay $40 billion for Arm Holdings, the British chip
designer backed by SoftBank Group Corp.
AMD is in talks to buy rival chip maker Xilinx Inc., The Wall
Street Journal reported earlier this month. The two parties are
discussing a deal that could come together this week or next,
assuming talks don't fall apart, according to people familiar with
the matter.
Some companies are looking to slim down and narrow their focus.
Broadcom Inc. last year explored a sale of its radio-frequency, or
RF unit, a segment of its wireless-chip business that makes filters
used in cellphones to clarify signals. It later decided against
selling it.
--Asa Fitch contributed to this article.
Write to Cara Lombardo at cara.lombardo@wsj.com and Dana
Cimilluca at dana.cimilluca@wsj.com
(END) Dow Jones Newswires
October 19, 2020 21:20 ET (01:20 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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