Micron Buys Qimonda's Inotera Stake, Boosting Micon-Nanya Alliance Market Share

Ownership of Taiwan memory chip maker Inotera Memories Inc. has finally been cleared up, as Micron Technology Inc. announced on Oct. 13 that it will pay $400 million in cash for Qimonda's entire 35.6% stake in Inotera. The deal is expected to bring closer relationship between Micron and Nanya Technology Corp., Inotera's major shareholder. Inotera's manufacturing technology will also become more compatible with Micron's, as with the stake transfer, Inotera plans to switch to Micron's Stack process manufacturing technology from the current Trench process from Qimonda.

The merger between Micron and Inotera, however, is bound to further reduce Qimonda's market share. Monthly output statistics from DRAMeXchange show that as 50% of Inotera's production capacity will shift from Qimonda to Micron with the ownership transfer, the Micron-Nanya alliance's market share is expected to rise to 21.4%, which is extremely close to the Elpida-PSC alliance's 21.9%, and the Hynix-ProMOS alliance's 21.6%. The global DRAM market is seen to be dominated by the three alliances mentioned above, and industry leader Samsung Electronics Co. in the future.

Despite the deal with Inotera, Micron is still seeking a merger with Qimonda, and competitors and industry analysts area closely watching the two companies' futures. Market observers said the $400 million price tag for Inotera's 35.6% stake means Micron pays nearly NT$11 per share for the deal, which is higher than Inotera's NT$9.4 close in Taipei trading on Oct. 13. The spread signals that Micron foresees Inotera's future contribution to its production capacity, and is willing to pay higher than current market prices, according to observers. On the other hand, since Micron has obtained the highly strategic stake of Inotera, it is uncertain whether Micron will still be interested in acquiring Dresden Fab in Germany.

Micron's acquisition of Inotera is definitely positive for overall development of the DRAM industry. In terms of manufacturing technology, Inotera will no longer be limited to the 70 nm trench technology, and is seen upgrading to the 68nm, and even 50nm stack technology. Such transition will eventually raise Inotera's competitiveness, and even though the process is very likely to decrease the company's production capacity, the cutback is healthy as the market has already been hit by oversupply. As major DRAM makers such as Powerchip, Elpida,  Hynix and ProMOS have already reduced production, Inotera's move is expected to help foster a market rebound, and create a win-win situation for DRAM market.

Density of NAND Flash Related Products Doubled; Contract Prices Show Both Rise and Fall

1H October NAND Flash average contract prices have shown both rise and fall. With a slump for NAND Flash contract price from early 2008, 8Gb MLC NAND Flash contract price has reached $1.63 in October, over 70% decline from US$6.16 one year ago. Meanwhile, 16Gb MLC NAND Flash price also dropped for over 80% from $12.8 to $2.22. 

With the decline of NAND Flash contract price, densities for most NAND Flash applied products have been doubled, reflecting lower memory cost. Products with higher density also provide consumers with incentive to either upgrade their product or attract more new users. One obvious example is iPod nano by Apple. Higher density for NAND Flash products will help to digest excessive supply in the market.

Higher densities for NAND Flash applied products have also prompted upstream suppliers to shift their production from low storage MLC to higher storage products. Due to decreasing supply, contract prices for low storage MLC products rebound. 8Gb MLC NAND Flash Price increased 3.1% from $1.58 in 2H September to $1.63 in 1H Oct. Average contract price for 4Gb MLC also rose 2.9%. Price for low storage SLC products also rose in the same period.

As downstream manufacturers continue to launch new products with higher density in 4Q08, upstream suppliers also continue to reduce output. Hynix, Toshiba/SanDisk and Micron have announced to cut output from their 8-inch fab production. Both upstream and downstream of NAND Flash industry have made efforts to lower inventory level in the market. With more procedures to ease global financial storm by major governments, we expect contract prices of certain NAND Flash products will stabilize for the short term.