Micron Technology and its Taiwan-based partner Nanya Technology said Thursday they are no longer interested in establishing a DRAM partnership agreement with Taiwan Memory Company, which is backed by Taiwan's government and counts the island's DRAM chipmakers as members.
The announcement was no surprise to analysts, given what Micron executives had to say last week about a potential tie-up. "There has been a lot of speculation around the consolidation of the Taiwan assets," Micron CEO Steven Appleton said. "As you know, the Taiwan companies are, I would say, very unstable in terms of their debt and cash structures."
The Right Decision
Appleton noted that TMC tapped Elpida Memory to become its key technology partner only after its Japan-based rival agreed to terms that Micron found unacceptable. He also said Micron saw no upside in risking the loss of some of its memory intellectual property to its Japan-based rival.
"Having to deploy all of our technology" in exchange for equity or some other type of financial instrument "doesn't really interest us," Appleton said in a conference call with investors. "We just don't see the advantages for us to do that."
Micron intends to concentrate on the production of new products through its Inotera memory-chip partnership with Taiwan-based Nanya Technology. "Clearly we're focused on the relationship we have with Nanya and Inotera," Appleton said.
During the call, Oppenheimer senior analyst Gary Hsueh told Appleton he agreed with Micron's assessment of the deal. "It really sounds like there's no upside here to be gained in saddling up side by side with Elpida -- certainly not in terms of kicking in your (intellectual property) for free, or in exchange for capacity, because you pretty much already have that" through your "agreement with Nanya and Inotera," Hsueh said.
Nam Hyung Kim, the chief analyst at iSuppli, also agreed with Micron's decision. "The company has a great balance sheet and cash position relative to its competitors," Kim said.
Searching for Upside
Meanwhile, conditions in the global DRAM market continue to remain challenging, Kim noted. "The market fundamental remains tough without any positive momentum, and suppliers' loss will persist throughout this year," Kim said.
However, Micron seems to be doing better than its competitors. According to iSuppli, Micron's DRAM revenue declined only 16.4 percent in the fourth quarter of 2008 -- the smallest decrease among the world's Top-10 DRAM suppliers. Moreover, the U.S. company's DRAM revenue share rose 3.6 percentage points in the fourth quarter -- the biggest increase among the world's top DRAM suppliers.
And so far this year, Micron has continued to outperform its rivals in its latest business quarter, noted Micron Vice President Mark Adams. "Our core DRAM segment, which includes our PC and server business, grew five percent ... quarter over quarter."
Adams also noted that DRAM chips recently enjoyed a pricing uptick that suggests the market is beginning to react to a reduction in DRAM supply. "We believe that Micron is well positioned to take advantage" of recent changes in a memory market "that has seen almost two years of capital-expenditure reductions and significant capacity from older technology coming offline."
According to industry tracker DRAMeXchange, most DRAM makers are facing cash-sufficiency problems and could begin defaulting on payments due in the short term. Some DRAM makers will have utilization rates of under 50 percent by the end of 2009, resulting in 2009 DRAM supply growth of just 2.43 percent, versus 95 percent in 2007 and 66 percent in 2008, DRAMeXchange said.