By Elizabeth Koh 

SEOUL -- Intel Corp.'s $9 billion deal to sell most of its memory-chip business to a South Korean company accelerates the industry consolidation around a ubiquitous technology component.

With the acquisition, SK Hynix Inc., based just outside Seoul, will control close to a quarter of the NAND flash market and become the industry's second-largest player, according to TrendForce, a market researcher. NAND flash are the gigabytes of storage used in smartphones, computers and other gadgets.

SK Hynix is currently the industry's No. 4 player with about 12% market share, while Intel, ranked No. 6, had 11.5%.

The deal, first reported by The Wall Street Journal on Monday, also includes Intel's wafer and solid-state drive businesses, plus the U.S. company's manufacturing operations in Dalian, China. Intel would retain its unit specializing in memory chips for large data centers and cloud providers. The companies said they intend to secure governmental approvals for the deal by late next year. Intel will continue to produce chips until then, they said.

The roughly $315 billion semiconductor industry has been on a deal frenzy. In September, Nvidia Corp. agreed to pay $40 billion for Arm Holdings, a British chip designer backed by SoftBank Group Corp. Analog Devices Inc. in July agreed to pay more than $20 billion for Maxim Integrated Products Inc. The Journal also reported earlier this month that Advanced Micro Devices Inc. was in talks to buy rival chip maker Xilinx Inc.

Even before the SK Hynix acquisition, 2020 had been the semiconductor industry's second busiest year for mergers and acquisitions, with deals valued around $63 billion, according to IC Insights Inc., a semiconductor industry researcher. The record is 2015 with deals valued at $107.7 billion.

Semiconductor companies globally are under pressure as U.S. trade moves limit sales to a major buyer, China's Huawei Technologies Co., a major provider of mobile-network gear and smartphones. Chipmaking is one of the world's most expensive lines of business, requiring multibillion-dollar facilities to churn out better-performing products on ever-tinier products.

Memory chips enjoyed a historic rise in prices for much of 2017 and 2018. The industry's fortunes darkened after smartphone sales dried up and manufacturers were left with excess supply. But in recent months, prices have begun to rebound amid stronger demand from data-center operators trying to keep up with extra internet usage resulting from the coronavirus pandemic.

SK Hynix was the world's third-largest semiconductor company in 2019, with $22.3 billion in revenue, according to Gartner Inc, compared with Intel's $67.7 billion and Samsung Electronics Co.'s $52.1 billion.

With the Intel acquisition, SK Hynix's annual sales could quadruple to $100 billion over the next decade, said Hansel Jones, chief executive of International Business Strategies Inc., a consulting firm in Los Gatos, Calif.

"Even though you pay a reasonably high price upfront, there's less competition, the price goes up and you make more margin," Mr. Jones said.

SK Hynix's memory chip operations can now compete better against larger players such as fellow South Korean company Samsung, Idaho-based Micron Technology Inc. and Japan's Kioxia Holdings Corp, formerly known as Toshiba Memory, industry experts said.

"It takes out one competitor from the NAND flash competition," said Avril Wu, a senior research director at TrendForce, though she added that competition remains fierce.

It also further consolidates memory-chip power in South Korea. In another major type of memory chips called DRAM, the two South Korean companies account for roughly three-quarters of the market. After the Intel deal, SK Hynix and Samsung will control more than two-fifths of the NAND flash market.

One of the main upsides for SK Hynix in the deal is Intel's superior control-chip technology, which helps with efficiency, said Akira Minamikawa, a Tokyo-based senior consulting director for Omdia, a market researcher. This can improve SK Hynix's pricing power, given that the company often charges less than rivals, he added.

SK Hynix was founded as Hyundai Electronic Industrial Co. in 1983 and merged with LG's semiconductor operations in the late 1990s. A few years later, the company became Hynix Semiconductor Inc., a combination of Hyundai and Electronics. In 2012, SK Group, one of South Korea's largest conglomerates, became the company's larger shareholder and changed the name to SK Hynix.

SK Hynix operates one facility in Icheon, South Korea, where the company is based, plus three factories in China. Intel's former Dalian facility will become SK Hynix's fourth China-based plant.

After the Intel deal was announced, SK Hynix shares fell 1.7% Tuesday, compared with a 0.5% rise for South Korea's benchmark Kospi index. Intel rose 0.3% in premarket trading.

The company also has options to bulk up further: SK Hynix holds convertible bonds that give it the opportunity to gain a 15% stake in Kioxia, which is controlled by a consortium led by Bain Capital.

Kioxia recently said it expected SK Hynix may soon exercise its right to get the stake. However, the arrangement also restricts SK Hynix from expanding its stake beyond 15% until 2028. Kioxia had planned to list its shares in an initial public offering in October, but it called off the plan, citing a loss of sales caused by U.S. sanctions on Huawei.

Write to Elizabeth Koh at


(END) Dow Jones Newswires

October 20, 2020 09:26 ET (13:26 GMT)

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