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Intel’s SK Hynix Deal Will Make Good Memories

intel’s-sk-hynix-deal-will-make-good-memories

The deal will help SK Hynix to narrow the gap with Samsung.



Photo:

SeongJoon Cho/Bloomberg News

Intel’s


INTC 0.78%

origin as a memory-chip company is already a distant memory. Its latest deal just confirms that—and brings much-needed consolidation to the industry.

Intel has agreed to sell its NAND flash memory-chip business to South Korea’s

SK Hynix


000660 -1.73%

for about $9 billion, including its manufacturing facilities in China’s Dalian. The unit makes NAND memory chips, which are used in storage from smartphones to computers. Intel will keep its small Optane business, which makes advanced memory chips used in data centers.

The deal makes sense for both parties. Intel gets cash to reinvest into its core central-processing-unit business, which is struggling to mass produce its most advanced chips. It will also exit a low-margin business that requires massive capital investment. Intel is only the sixth largest player in NAND, lacking the scale to compete with market leaders such as

Samsung Electronics.

It also got a good price: The deal values Intel’s NAND business at 1.7 times sales, compared with 1.1 times enterprise value to sales for

Western Digital,

according to analysts at Cowen.

For SK Hynix, the deal will help it to narrow the gap with Samsung. SK Hynix and Intel combined had about 23% of the NAND market in the second quarter, according to Taiwanese research firm TrendForce. The transaction would put it ahead of Kioxia’s 17% and just behind Samsung’s 31%. SK Hynix will also get a bigger piece of the pie in the more lucrative enterprise solid-state drives. More than 60% of SK Hynix’s NAND revenue comes from the mobile market, which is more price-competitive, according to TrendForce. It may also sell its new products alongside its DRAM chips, used in processing.

The deal also sparks hopes for even greater consolidation in the NAND industry, as has already happened in DRAM. Western Digital jumped 8% Monday while

Toshiba,

which owns about a 40% stake in Kioxia, rose 4% Tuesday. Competition in DRAM is less intense as the market is effectively dominated by only three players: Samsung, SK Hynix and Micron.

The NAND market, in contrast, still had six major players before the deal. With one less player, the market expects less intense competition and better margins while some smaller players may also be bought.

Not all acquisitions make sense—especially in this era of dizzying tech valuations—but for Intel and SK Hynix, this deal looks likely to compute.

Write to Jacky Wong at [email protected]

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