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INTEL CORPORATION

(INTC)
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Intel Enters Deal to Sell NAND Memory Unit to SK Hynix --Update

10/19/2020 | 09:21pm EDT

By Cara Lombardo and Dana Cimilluca

Intel Corp. has reached a deal to sell its flash-memory manufacturing business to South Korea's SK Hynix Inc. for about $9 billion, in a move that would reorient the semiconductor giant away from an area of historical importance that has become increasingly challenged.

The Intel unit makes NAND flash memory products primarily used in devices such as hard drives, thumb drives and cameras. The U.S. chip maker has been weighing getting out of the business for some time, driven by sagging prices for flash memory.

Under the deal reporter earlier Monday by The Wall Street Journal, SK Hynix plans to buy most of Intel's memory business, including the related memory manufacturing operations in Dalian, China, the South Korean company said in a statement. Intel will keep its Optane line of memory products, an advanced type of storage used heavily in data centers.

The deal would make SK Hynix one of the world's largest NAND memory makers. SK Hynix and Intel's combined market share was more than 20% in the second quarter, according to Taiwan-based research firm TrendForce, trailing only South Korean giant Samsung Electronics Co., which held over 30% of the market.

While Intel is best known for making the central processing units at the heart of personal computers, the company has deep roots in the memory business. It started as a memory manufacturer in the late 1960s before stiff competition from Japan's burgeoning electronics industry in the 1980s led the company to change course.

The market for memory chips slumped in 2018 amid an oversupply of the devices, though it began to recover late last year. Analysts expect the market for NAND devices to remain strong in the coming years amid a surge in data storage.

Nonetheless, Intel Chief Executive Bob Swan said in April that the company had to generate more attractive returns from the NAND business and suggested it could enter into a "partnership" to make that happen.

George Davis, the California-based company's chief financial officer, said in March that while there were growing markets for flash memory, including in huge data centers, "We haven't been able to generate the profits out of that to get the kind of returns that we would like to see."

Intel already pared down its involvement in memory manufacturing in January when Micron Technology Inc. bought out Intel's share in a joint venture for about $1.5 billion. That venture was focused on an advanced memory technology called 3D XPoint.

Intel, which has a market value of roughly $230 billion, has been under increasing pressure as smaller rivals gain market share. Its stock is down about 10% this year, compared with a roughly 30% rise in the PHLX Semiconductor index. The shares dropped more than 15% when Intel in July indicated that second-half results would be weaker than expected and revealed further delays in the rollout of its superfast seven-nanometer chip technology, which underlies future generations of central processing units.

While Intel has struggled to move into mass production of its most advanced chips, rival Advanced Micro Devices Inc.'s market share in personal computer CPUs climbed above 17% in the first quarter, more than doubling from five years earlier, according to Mercury Research. Intel holds almost all of the remaining market share.

Intel is set to report its third-quarter earnings Thursday afternoon.

The market for memory chips has been shaken by U.S. efforts to curb the rise of China's tech industry and restrict exports to Chinese firms such as Huawei Technologies Co., the country's leading telecom equipment maker. Japanese memory-chip maker Kioxia Holdings Corp., owned by a consortium led by private-equity firm Bain Capital, last month delayed one of this year's most anticipated public offerings because of the situation.

Intel's advanced flash memory, referred to as 3D NAND because it has multiple layers of memory cells stacked on top of each other, has been produced for the past five years in Dalian, a port city on the Liaodong Peninsula just west of the Korean Peninsula.

That factory is Intel's only major chip-manufacturing site in China and its sale to SK Hynix would mark a serious reduction of the company's presence there.

The U.S. has been ratcheting up pressure on Chinese chip-making recently, including by requiring companies to obtain licenses before exporting some technology to China's most advanced chip maker, Semiconductor Manufacturing International Corp.

Consolidation has swept through the semiconductor sector as industry players seek scale and expand their product portfolios to support the increasing number of everyday items that are connected to the internet.

Analog Devices Inc. in July agreed to pay more than $20 billion for Maxim Integrated Products Inc., and Nvidia Corp. in September agreed to pay $40 billion for Arm Holdings, the British chip designer backed by SoftBank Group Corp.

AMD is in talks to buy rival chip maker Xilinx Inc., The Wall Street Journal reported earlier this month. The two parties are discussing a deal that could come together this week or next, assuming talks don't fall apart, according to people familiar with the matter.

Some companies are looking to slim down and narrow their focus. Broadcom Inc. last year explored a sale of its radio-frequency, or RF unit, a segment of its wireless-chip business that makes filters used in cellphones to clarify signals. It later decided against selling it.

--Asa Fitch contributed to this article.

Write to Cara Lombardo at cara.lombardo@wsj.com and Dana Cimilluca at dana.cimilluca@wsj.com

(END) Dow Jones Newswires

10-19-20 2120ET

Stocks mentioned in the article
ChangeLast1st jan.
ADVANCED MICRO DEVICES, INC. 0.90% 91.97 Delayed Quote.-2.51%
ANALOG DEVICES, INC. 0.84% 163.23 Delayed Quote.9.67%
BROADCOM INC. 1.36% 482.34 Delayed Quote.8.79%
INTEL CORPORATION -6.22% 52.49 Delayed Quote.12.32%
MAXIM INTEGRATED PRODUCTS, INC. 0.96% 99 Delayed Quote.12.88%
MICRON TECHNOLOGY, INC. 0.29% 75.72 Delayed Quote.0.47%
MSCI TAIWAN (STRD) 0.96% 701.803 Real-time Quote.15.67%
NVIDIA CORPORATION -0.40% 194.88 Delayed Quote.50.09%
SAMSUNG ELECTRONICS CO., LTD. -0.50% 79300 End-of-day quote.-2.10%
SEMICONDUCTOR MANUFACTURING INTERNATIONAL CORPORATION -1.79% 21.9 End-of-day quote.-0.90%
SK HYNIX INC. -0.84% 118500 End-of-day quote.0.00%
SOFTBANK GROUP CORP. 0.47% 7261 End-of-day quote.-9.89%
XILINX, INC. 0.67% 137.4 Delayed Quote.-3.74%
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Financials (USD)
Sales 2021 73 751 M - -
Net income 2021 16 653 M - -
Net Debt 2021 16 953 M - -
P/E ratio 2021 13,8x
Yield 2021 2,48%
Capitalization 226 B 226 B -
EV / Sales 2021 3,29x
EV / Sales 2022 3,26x
Nbr of Employees 110 600
Free-Float 99,9%
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Technical analysis trends INTEL CORPORATION
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Income Statement Evolution
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Mean consensus HOLD
Number of Analysts 49
Last Close Price 55,96 $
Average target price 63,79 $
Spread / Average Target 14,0%
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Managers and Directors
Patrick P. Gelsinger Chief Executive Officer & Director
George S. Davis Chief Financial Officer & Executive Vice President
Omar S. Ishrak Independent Chairman
Daniel J. McKeon Vice President-Information Technology Group
Ann B. Kelleher Senior Vice President & GM-Technology Development
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