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IHS: Micron, Elpida merger could present Samsung with its most powerful rival yet

Source: IHS iSuppli Research, February 2012

A possible merger between US firm Micron Technology and Japan's Elpida Memories could yield a new force to counter Samsung and 'rock the dram market to its core', according to market analyst IHS iSuppli.

Rumours about the merger have been circulating throughout the industry and Mike Howard, analyst at IHS, believes this would catapult the new company into second place in the global dram market, behind Samsung. Currently, Elpida and Micron are placed 3rd and 4th, respectively, while Hynix Semiconductor, currently in second position, would drop a position.

Based on the latest information, Howard reports that the newly merged company would have a 28% share of the worldwide dram manufacturing capacity.

"Overall, a Micron/Elpida merger would present Samsung with its most powerful rival yet, IHS believes," said Howard. "The South Korean electronics giant is usually 10 percentage points ahead of its next competitor, but the merger would trim Samsung's formidable market share lead by half, to five percentage points. Media and industry speculation currently poses the tantalising possibility of Micron taking over Elpida,or of Elpida coming to some sort of arrangement with its rival. But before such a Trans-Pacific marriage can proceed between the leading US memory player and the chief Japanese dram producer, both Micron and Elpida would have to face down a number of potent challenges."

These challenges, says Howard, include Elpida's outstanding debt. At the end of the third quarter last year, Elpida owed $4billion in outstanding obligations. A second challenge is the strong yen, the currency in which approximately 60% of Elpida's wafers in Japan is denominated. The robustness of the currency would render manufacturing in Japan uncompetitive compared to production in other Asian countries, such as Taiwan and South Korea where most dram is made.

"For the customers of both," added Howard, "a combined Micron/Elpida entity could prove both a blessing and a curse. A merger would result in one less supplier for the market, which could have the effect of allowing the other remaining players in the dram space to enjoy even more leverage over their customers. But a merger could also prove to be crucially needed ballast against the overwhelming size and influence of Samsung, acting as a foil to the South Korean's relentless advance in dram."

Chris Shaw

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