[Click eStock] "SK Hynix Intel NAND Acquisition... Essential Choice for Survival"

Strategic Decision to Escape Pursuit by Chinese Companies
"Possibility of Market Share Expansion and Profitability Improvement"

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] SK Hynix has acquired Intel's NAND flash business unit for approximately 10 trillion won. Although the price is high, it is analyzed as a choice for survival.

On the 21st, Samsung Securities analyzed SK Hynix's acquisition as a strategic decision for survival and growth, though not the optimal price. The sense of crisis that if growth stops, Chinese companies will catch up played a role, and it was a bold decision to pursue growth amid the recession caused by the novel coronavirus disease (COVID-19). Earlier, SK Hynix announced on the 20th that it would acquire the Intel NAND flash business excluding the Optane division. The acquisition amount is $9 billion (about 10.3 trillion won), making it the largest domestic merger and acquisition (M&A) deal, surpassing Samsung Electronics' $8 billion acquisition of Harman in 2016.

The acquisition method was also analyzed to share profits and prepare safeguards just in case. Samsung Securities researcher Minseong Hwang explained, "To reduce financial risk, SK Hynix plans to pay the amount in two installments over the next five years and is expected to finance the acquisition through cash on hand, borrowings, asset securitization, and financial investments. Additionally, the business will operate as a separate entity for five years, maintaining personnel, which is partly due to legal obligations between Intel and existing partners and also to ensure continuity in Floating Gate technology development."

The acquisition is expected to expand market share in the NAND flash business and improve profitability. Researcher Hwang said, "SK Hynix has more than twice the NAND production capacity compared to Intel, but similar sales because SK Hynix mainly focuses on low-value mobile single products, whereas Intel's product composition is centered on high-priced enterprise solid-state drives (SSD). In the first half of the year, SK Hynix posted a 15% operating loss, while Intel showed a 21% operating profit, indicating better performance." This means that by acquiring Intel's NAND-related technology and enterprise SSD business, SK Hynix can rise from 5th-6th to 2nd place in the NAND semiconductor market and from 5th to 1st place in the enterprise SSD market, while also improving profitability.

Additional synergy effects are also expected. Researcher Hwang predicted, "Although excluded from this contract, future production cooperation on Optane and expanded collaboration between CPU and memory are anticipated." Intel Optane memory is a product combining DRAM and NAND flash, possessing both the fast speed of DRAM and the non-volatile characteristics of NAND flash. It acts as an intermediary connecting CPU, SSD, and hard disk drives (HDD), enhancing speed.

Meanwhile, Samsung Securities maintained a 'Buy' investment opinion and a target price of 120,000 won for SK Hynix. The closing price the previous day was 85,200 won.