$9 billion, Intel’s only Chinese fab sold, Hynix seeks to break out

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SK hynix and Intel jointly announced the signing of an acquisition agreement. SK hynix will acquire Intel’s NAND flash memory and storage business in an all-cash manner of US$9 billion. The final delivery will be completed in March.

On October 20 (today), SK hynix and Intel jointly announced the signing of an acquisition agreement. SK hynix will acquire Intel’s NAND flash memory and storage business in an all-cash manner of US$9 billion. The approval of the government agency, and the final delivery will be completed in March 2025.

According to the announcement issued by SK Hynix, the NAND flash memory and storage business acquisition agreement signed by the two parties includes: NAND SSD (solid-state drive business), NAND flash memory and wafer business, and Intel’s NAND flash memory manufacturing plant in Dalian, China.

As Intel’s leading storage technology – Optane (Optane) business will not be included in the acquisition agreement, but will continue to be retained by Intel.

The entire acquisition process will be carried out in two phases: the first phase will be launched after obtaining a government license, and SK Hynix will pay US$7 billion to acquire the NAND SSD business from Intel, including related intellectual property rights and employees, as well as the Dalian NAND flash memory manufacturing plant ; The second phase will be completed in March 2025 when the final delivery, SK Hynix will pay the final payment of 2 billion US dollars to take over the rest of Intel’s related assets, including the production and design of NAND flash wafers, intellectual property rights, R&D personnel and Dalian NAND flash memory Manufacturing plant employees.

Intel: Break free, travel light

The sale of Intel’s NAND flash memory and storage business did not actually surprise the industry. It first parted ways with Micron and completely sold its shares in the IMFT factory, and then gave up the baseband chip business and completely withdrew from the main smartphone-related business. There seems to be only one theme for Intel, whose power is gradually declining – to reduce the burden and move forward, and focus on the core.

As the king of the semiconductor field in the PC era, after a round of strategic mistakes, Intel not only showed a slight weakness in the mobile Internet era, but even its proud main battlefield was constantly challenged by the upstarts in the industry. A series of wrong buy orders such as the choice of technical direction and execution. Under the double pressure from inside and outside, Intel not only gradually lost its original competitive advantage, but also had to give up the “self-production and self-sale” model that had been operating for many years, and expressed its willingness to outsource orders for the first time this year.

In the NAND market, Intel, as always, has shown a state of weak competition and unintentional entanglement. This is because the price of NAND flash memory fluctuates greatly due to market supply and demand, and the R&D and production of flash memory requires a huge amount of capital investment, so it is difficult to guarantee profits. Selling related businesses is undoubtedly a choice to seek to reduce risks.

According to the data, Intel’s Dalian factory spent 2.5 billion US dollars and was built after three years, and it is fully responsible for Intel’s NAND flash memory business. However, Intel, which is under huge manufacturing pressure and spent a lot of effort to perfect a complete chip semiconductor industry chain, found that the huge investment in exchange for the return is slow and very limited.

From a technical point of view, Intel is different from other manufacturers. It is currently the only company that adheres to the floating gate structure (Floating Gate) as the production of 3D NAND Flash, and is unique among the manufacturers using the charge trap structure;

In terms of production, Intel operates only one large-scale NAND factory in Dalian in China, accounting for about 6%-7% of global NAND production;

From the perspective of market share, the NAND market is firmly dominated by Samsung, occupying a dominant position. Among the six companies dominated by Samsung, Kioxia, Western Digital, Micron, SK Hynix and Intel, Intel has only 11% of the share. Relegated to last place. And among these six companies, except Intel, other companies regard the storage business as the main business or the main profit point, only Intel’s storage business is not the main business, and the proportion of revenue is not high.

In terms of revenue, Intel’s market revenue in this field is also not stable. According to the financial report, Intel’s non-variable storage solutions business has been in a state of continuous loss since 2016, with losses of US$540 million, US$260 million and US$5 million from 2016 to 2018, which did not start until 2019. Profit of 120 million US dollars.

Image source: Flash market data source: Intel, China Flash Market ChinaFlashMarket

Coupled with the rush to achieve the goal of high profits, it seems unsurprising that Intel is selling NAND-related businesses. According to relevant reports, as early as July 2019, there was news that SK Hynix planned to acquire Intel’s entire Dalian factory and 3D NAND business, and the news also said that Intel will only continue to retain XPoint-related memory storage technology.

There is no doubt that the sale of the NAND flash memory and storage business will enable Intel to focus more on its core business.

“This transaction will allow us to further prioritize investments in differentiated technologies,” Intel CEO Bob Swan said in a statement. Intel will invest the proceeds of this transaction, focusing on key businesses with long-term growth potential, including artificial intelligence, 5G networks, and edge devices related to autonomous driving.

SK hynix: trying hard to break out

On the other hand, for SK Hynix, the acquisition of Intel’s NAND flash memory and storage business is also traceable. As the world’s second largest memory chip manufacturer, although its DRAM product market share is second only to Samsung Electronics, its market ranking in NAND is still relatively low.

Secondly, SK hynix’s internal revenue is also extremely unbalanced. According to the financial report, its DRAM business accounted for 73% of SK hynix’s total revenue in the second quarter of 2020, while its NAND business only accounted for 24%.

Image credit: Smart Things

By acquiring Intel’s NAND business, SK hynix is ​​expected to increase its share of the NAND market to over 20% in the short term, thereby narrowing the gap with leading Samsung Electronics. At the same time, SK Hynix will also get help in the “arms competition” with Samsung Electronics. It is reported that Samsung announced on August 28 this year that it will invest 7 billion US dollars in the future to expand the production of NAND chips of Samsung Electronics in Xi’an. For SK Hynix, it is naturally unwilling to lag behind, so whether it can obtain the Dalian factory becomes very important to it.

In the long run, the industry consolidation caused by this transaction will also help reduce competition in the industry, while helping SK hynix outperform other competitors. Both Intel and SK Hynix have the technology to develop and independently produce NAND flash memory, but their market positioning is different. The former is enterprise-level SSD and flash memory chips, while the latter’s main battlefield is on the consumer side.

However, the interdependence of pros and cons is an invariable law. While obtaining huge benefits, SK hynix also bears a lot of risks.

Park Sung-soon, an analyst at Cape Investment & Securities, said: “In the short term, the deal will put a financial burden on SK Hynix, which is expected to continue to report losses in its NAND business due to oversupply.”

In addition, SK hynix and Intel are also facing the problem of technical running-in. The two mentioned above belong to the charge trapping camp and the floating gate structure camp. They are both in terms of product storage density, performance and reliability. Each has its own advantages and disadvantages. Although there is not much difference in the manufacturing process and required equipment materials, it is only the adjustment of product structure and process parameters, but in the high-precision storage industry, any details have a huge impact.

Therefore, in the follow-up, whether it is technology integration or seeking a balance between different product architectures to achieve maximum synergy, SK hynix may have to focus on promoting.

summary

In the era of great changes in the semiconductor field, industry integration continues, mergers and acquisitions are common, and the industry continues to optimize. The old giants urgently need to get rid of their shackles and travel lightly. Fortunately, the core areas are more focused on obtaining long-term returns; the industry giants can’t wait to arm themselves, strengthen the competitiveness of the industry, and challenge the dominance of the industry leader. In the end, is it a win-win, or a loser?