Micron in alliance talks with Hynix Semiconductor

Agence France-Presse, Seoul

Micron Technology Inc. of the United States has started talks with the ailing Hynix Semiconductor Inc. on forming an alliance or merging to create the world's biggest microchip maker, officials said Monday.

Micron and Hynix are evaluating "a broad array of strategic options," said a statement issued by Micron chief executive and chairman Steve Appleton and Hynix president Park Chong-Sup.

They said discussions would be "exploratory in nature", but Park suggested in a separate statement that Hynix, which has estimated debts of 11.6 trillion won (US$9.1 billion), could merge with Micron.

"A merger with Micron is possible as part of a strategic alliance with Micron," the head of the South Korean firm said, adding the two could also discuss joint development of technologies.

Any merger would drastically alter the world's microchip industry, which has been troubled by oversupply and falling prices. Together, Micron and Hynix would be the world's largest microchip maker.

Micron is the world's second largest memory chip producer after South Korea's Samsung Electronics Co. and Hynix is the third largest.

Samsung had 16.7 percent of the international memory chip market last year ahead of Micron's 11.6 percent and 11.1 percent for Hynix.

In the key dynamic random access memory (DRAM) chip segment, Samsung had 20.9 percent, Micron 18.7 percent and Hynix 17.1 percent.

Analysts said Micron seems to have opted for Hynix as its prospective partner in a bid to compete with Samsung.

Hynix and Micron, blamed for intensifying price wars during the current industry downturn, would enhance their bargaining power against buyers and outpace Samsung if they merged, said Korea Investment Trust and Securities analyst Michael Min.

But Min was pessimistic about the prospects for a merger given the strong anti-trust policies of the United States and European Union.

Micron might try to secure a controlling stake in Hynix at a discount through a share swap after creditors swap their debt for equity, he said.

Hynix, which is reeling under heavy debts, regards a merger as the last resort for its survival.

Hynix said full discussions between Hynix and Micron began last week when Appleton made a secret trip to Seoul.

"There will be a change in the landscape of the world's microchip industry because many second-tier firms, including those in Japan and Taiwan, are under pressure to close facilities," Park said.

Park, however, said Hynix was still open to talks with Chinese companies over the sale of some production facilities.

Hynix has sought to sell some assets and technology to Chinese companies since creditors approved a $2.9 billion bailout last month, reducing the possibility of Hynix defaulting on its debt.

Talks between Hynix and Micron have been prompted by a prolonged slump in the global technology industry which is expected to last well into next year.

Park urged Samsung and other major semiconductor companies to reduce production to prop up prices.

Hynix has already has sold its mobile phone division to a local consortium for $37 million and a liquid crystal display unit to a Sino-Korean consortium for $59 million.

South Korea's Finance Minister Jin Nyum said Hynix would be one of several "problems at major companies that overshadow our economy" expected to be solved by the end of the month.

He said bankrupt carmaker Daewoo Motor Co. will sign a final contract with General Motors Corp. of the United States and "Hynix will resolve its management problems by forming alliances with Micron."