Micron Technology buys Qimonda Stake in Inotera: Micron Technology bought Qimonda’s 35.6% stake in Inotera on 15 October 2008, for $400M, and immediately halted upgrading the toolset on its own JV with Nanya fab, MeiYa; analysts enthused over the fact that Micron will get more wafers for far less investment doing it this way, which is true…Inotera is already 300mm and MeiYa was a refit from 200mm to 300mm.

Which begs the question whether Micron needed the DRAM capacity it was adding at MeiYa in the first place. Although they are clearly focused on DRAMs these days, they have delayed finishing up their Singapore IMFS NAND flash fab twice, and in the breath prior to announcing the Inotera buy out, they decided to lay off 3000 over two years at Boise and downsize that 34K wafers/month 200mm NAND fab. (BTW, IMFT partner Intel said they would take a $250M asset impairment charge for that particular Boise downsizing action in its 4Q08 period.) To be sure, IMFT's 34nm NAND technology is compelling, and seems way ahead of the competition; Micron is arguably the lowest cost NAND producer in its best process and its best lines. But, as we have seen in the past 12 months, overall enterprise fab management and execution…having the best product/process running across the entire manufacturing base, is an important key to success…added to fully-loaded fabs, focused product development spread over a broad product line, and sometimes risk separation between one’s technology partners…. Hynix-ProMOS is rather ragged, Elpida-Rexchip-Powerchip is clean and seemingly very effective. We’ll see about Micron-Nanya-Inotera, which has yet to really begin.

For sure, these are not easy investment decisions: Invest/divest in NAND and/or DRAM? Close 200mm lines or expand 300mm lines…which fabs forward and which reverse? And maybe there is yet another shoe to drop in the Micron-Qimonda saga; Qimonda’s G DRAM product line looks pretty good these days, as does its LP/Mobile DRAM position and technology as well as its next-generation 4F2 BWL DRAM technology...but the present deal yielded none of those technology or product gems to Micron, just the Inotera wafer starts, which will be converted to the Micron DRAM process over the next 8 months. For sure, no one knows how long and how deep this price gully will last, and it is safe to say that Micron is probably losing money in DRAMs today…and, if ‘conventional wisdom’ is either ‘conventional’ or ‘wisdom’, in a downturn “Cash is King.”

To continue the discussion with Qimonda, and acquire more of their fabs, Dresden or Virginia, is to believe that the industry is still strongly cyclical and the present malaise will turn back to Green Light in a reasonable time (Micron is cash flow positive, unlike most other memory makers whose financials are publicly open to scrutiny.). This is a bet; otherwise, one could only equate more DRAM capacity with more losses. Not wholly unlike asking whether Samsung’s $26/share offer for SanDisk (then selling at $14/share) was a premium of close to 100%, or a steep discount from SanDisk’s 52-week high or $56. Is the glass full? Or it is twice as full as it will be in a short time? “True believers” in the eternal cyclicality of DRAM (or NAND) markets should load up on memory maker stocks today, which are at historic low prices.

Still, it is a rank gambler, or a brave man, who will place a large bet against the forces of financial anarchy and the uncertainties of these past 60 days.

Micron Chairman Steve Appleton is on record as expecting that recent DRAM capacity takedowns will crimp DRAM bit supply growth to the 35-40% range in 2009; this could make Inotera-Dresden a good bet…short DRAM supplies, prices up, goodness. But you can also get this year’s 70% growth down to 40% by extinguishing demand with a ‘recession of significance’ …which does nothing to raise prices, profits, or anyone’s share price.