SK Hynix buys Intel’s NAND memory business for $ 9 billion

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In a joint press release issued early this morning, SK Hynix and Intel announced that Intel will sell all of its NAND memory business to SK Hynix. The deal, which values ​​Intel’s NAND holdings at $ 9 billion, will see the company shift the NAND business into two parts, with SK Hynix ultimately acquiring all IPs, facilities, and personnel related to Intel’s NAND efforts. Notably, however, Intel does not sell its global group of non-volatile memory solutions; instead, the company will keep its Optane memory technology while continuing to develop and sell that technology.Under the terms of the unusual deal, SK Hynix will acquire Intel’s two-part NAND memory business, with the deal not expected to be fully closed until March 2025. As part of the first phase, which will take place in 2021 Once all relevant regulators have approved the seal, SK Hynix will pay Intel the first $ 7 billion for its SSD business and Intel’s only NAND plant in Dalian, China. This will see Intel’s consumer and enterprise SSD business transferred to SK Hynix, along with the affected IP address and employees for SSD business, but do not any NAND IP or employees. Likewise, while SK Hynix will get the Dalian plant, the first phase does not come with the employees who operate it.

After the first phase, Intel will continue to develop and manufacture NAND from the Dalian plant for approximately four years. This period is expected to last until the rest of the deal comes to a complete end in March 2025. At that point, SK Hynix will pay Intel $ 2 billion for the remainder of its NAND business. This will ultimately transfer all NAND IPs from Intel and associated employees to SK Hynix, as well as employees from the Dalian plant. Intel and SK Hynix have not provided any explanation for this extended acquisition, so we hope to hear a bit more with the relevant earnings calls from the companies this week.

Meanwhile, Intel will continue to maintain its Optane memory business. Optane is considered a “platform differentiator” by the company as Intel intends to continue leveraging the technology for their unique and high capacity NV-DIMMs. As a result, Intel has announced that it will continue to develop the underlying 3D XPoint technology and sell products based on it, which matches their long-term aspirations of making Optane their own level in the hierarchy. memory / storage.

Overall, selling their NAND business is a big step forward for Intel, a company that has started manufacturing memory. But that’s not entirely unexpected, as Intel has never had as much success with its NAND business as they would have liked. And the core of the company’s NAND efforts, their long-standing IMFT joint venture with Micron, began to come to an end in 2018 when the two companies announced they would stop jointly developing flash memory.

Since then Intel has largely gone its own way, securing the fifth place in the NAND industry (usually just behind 4th SK Hynix) and launching new products, but grappling with the core nature of the NAND business. . While Intel’s Non-Volatile Memory (NSG) solutions group as a whole generated $ 4.4 billion in revenue for 2019, the group has lost money in 4 of the past 5 years, recording revenue stable or negative operating conditions. It’s only in the past six months that Intel has made any real money from NAND, reporting an operating profit of $ 600 million for the first half of 2020. So although NSG – and Much of Intel’s NAND business – played a big part in Intel’s bottom line of revenue, they didn’t make a significant profit for a company known for its 60% gross margin.


Intel NSG Revenue and Operating Profit, 2015-2019

Meanwhile, for SK Hynix, the Intel deal opens the door to new opportunities and also helps the once-fourth-largest company grow to face competition from its three remaining competitors, Samsung, Kioxia / WD and Micron. . TrendForce estimates that once this deal is struck, SK Hynix will become NAND’s second-largest supplier, with more than 20% of the market share, placing it behind market leader (and Korean competitor) Samsung. Like many other commodity component markets, the NAND flash market has been subject to sharp swings in profitability and the resulting pressure to consolidate, therefore by taking over the NAND business from Intel, SK Hynix will be in a stronger position in the future.

But the real pearl for SK Hynix is ​​Intel’s enterprise SSD business, which the company specifically calls out in its joint press release. Despite its overall modest size, Intel’s NAND business has a strong presence in the enterprise SSD market thanks to its early investment in this sector as well as its dominance of enterprise processor sales. Samsung is Intel’s main (and arguably the only serious) competitor in this area, so the acquisition of Intel’s SSD business makes SK Hynix much more capable of competing with its biggest rival.


SSD Intel Enterprise « Ruler »

In the long term, however, it remains to be seen what SK Hynix will do with the fab NAND side of Intel’s business. While it is clear that they have big plans for SSDs and intend to leverage Intel’s existing market share and customer relationships – which is a big part of why they are acquiring this segment first. – SK Hynix does not necessarily need Intel’s NAND manufacturing technology. SK Hynix is ​​quite capable of building more factories on its own if it wanted more raw NAND capacity, and indeed the company has undergone several expansions. Meanwhile, companies’ technologies are very different, as Intel relies on floating gate technology while SK Hynix uses charge trap technology. So, although both technologies have their trade-offs, it is highly doubtful that SK Hynix wants to continue to develop both in the long term.

And for both parties, the long term is really the key. NAND flash still faces a likely long-term deadlock, as NAND was scaled down to almost as small as possible before leakage became a serious issue. 3D NAND stacking has given NAND a new lease of life in the meantime, but only so far can it go, especially when it comes to cutting bit costs. That’s a big part of why Intel developed 3D XPoint to start with, as the technology doesn’t suffer from the same scalability restrictions. So although Intel is moving out of the NAND game, they’re still very much involved in the long-term storage game, now focused on non-volatile memory technology that is expected to evolve much further in the future.

Speaking of the future, Intel has also said it will invest the expected proceeds from the sale in some of its other non-core and forward-looking businesses. Intel’s 5G, AI, and edge efforts should all benefit from the sale, and all are markets Intel is preparing for potentially extreme growth over the next several years.

In the meantime, however, the next step will be for regulators. The SK Hynix acquisition will require approval from US, South Korean and Chinese regulators, which the companies expect to take about a year – and at which point SK Hynix can begin the actual acquisition. Meanwhile, Intel is expected to report its third quarter results on Thursday, when we could hear a little more about the deal from Intel’s perspective. SK Hynix’s own earnings call to follow in a few weeks on November 3rd.

Source: SK Hynix et Intel

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