Micron rumored Qimonda buy 'likely to happen,' analyst says

"We believe an acquisition of Qimonda positions Micron as one of the two surviving memory leaders able to control supply and IP as it waits for long-term demand drivers to materialize," American Technology Research Analyst Dough Freedman says.

By Suzanne Deffree, Managing Editor, News -- Electronic News, 9/22/2008

Micron Technology Inc's rumored acquisition of Qimonda AG is expected to materialize in the near future, according to American Technology Research Analyst Dough Freedman.

"We now believe that Micron’s investigation into acquiring Qimonda has progressed and that a deal is likely to happen," Freedman said in a research note this morning.

Speculation on such a deal began in April when Qimonda's parent company, Infineon AG, announced plans to sell off its investment in the DRAM maker. Reports out of Germany at the time stated Infineon was negotiating a buy for part or all of its 77.5% stake in Qimonda with Idaho-based Micron, as well as Korea's Hynix and Elpida.

The speculation of a Micron buy of Qimonda heated up again last week after Samsung's $5.85 billion bid for flash rival SanDisk was made public. 

"We believe an acquisition of Qimonda positions Micron as one of the two surviving memory leaders (along with Samsung) able to control supply and IP as it waits for long-term demand drivers to materialize (SSDs). We believe that Toshiba and Hynix could become isolated and constrained as Samsung attempts to control the technology transfer of SanDisk IP through acquisition," said Freedman (pictured).

Freedman made specific note of Qimonda's extensive manufacturing partnering as an attraction point for Micron.

"Micron is able to leverage Qimonda's Inotera joint venture, with additional Taiwan facilities and IP revenue opportunities on top of its existing MeiYa joint venture with Nanya. Although structure is uncertain, the future DRAM royalty cash flows at Inotera could point to a more gradual increase in ownership over time to avoid dilutive financing," Freedman said.

"We have never believed a cash infusion from the [Micron] image sensor business was not necessary for the deal to happen as a Qimonda acquisition significantly reduces DRAM capacity investments in FY09 [fiscal year 2009]," he continued. "We estimate the cost of converting Qimonda fabs to Micron processes is $100 million vs. the [approximate] $500 million FY09 capex for organic DRAM capacity (or 30% of the FY09 guided capex of $1.5 million to $2 billion)."

The analyst further pointed out that Munich-based Qimonda's fabs assets are "more valuable" to Micron as compared to other potential acquirers like Hynix or Nanya, as their common geographies with established Micron locations allow logistics synergy. Munich-based Qimonda has manufacturing operations in Germany, the United States, Malaysia, Portugal, China, and Germany. Boise, Idaho-based Micron also has nearby locations in Germany, the US, and China, and several locations in Europe.

American Technology Research estimated if such a Micron buy were to go through, the company could walk away with a significant bargain.

"We believe a deal could be done at a fraction of projected book value (near $1/share and $350 million, or 25% of $4/share book value) as Qimonda cannot fund projected losses through FY09," Freedman concluded.

Micron and Qimonda did not return Electronic News calls for comment.