Intel Nears Deal to Sell NAND Memory Unit to SK Hynix--Update
October 19 2020 - 1:26PM
Dow Jones News
By Cara Lombardo and Dana Cimilluca
Intel Corp. is nearing a deal to sell a memory-chip unit to
South Korea's SK Hynix Inc. for roughly $10 billion, in a move that
would reorient the semiconductor giant away from an area of
historical importance that has become increasingly challenged.
The companies are discussing a deal that could be announced as
soon as Monday, according to people familiar with the matter,
assuming the talks don't fall apart at the last minute. Specifics
of the transaction, including exactly what SK Hynix would be
buying, couldn't be learned.
The Intel unit makes NAND flash memory products primarily used
in devices such as hard drives, thumb drives and cameras. Intel has
been weighing getting out of the business for some time, driven by
sagging prices for flash memory.
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 it 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 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 to 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,
is produced in Dalian, China, 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 if it is included in the sale it would mark a serious
paring down of the company's presence there.
The U.S. recently required 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 industry 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 14:11 ET (18:11 GMT)
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