Deal to Make SK hynix No. 2 player in NAND Market
SK hynix announced on Oct. 20 that it will acquire the entire NAND flash business of U.S. semiconductor company Intel for US$9 billion. The company said it will take over Intel’s Non-volatile Memory Solutions Group (NSG) excluding the Optane Unit.
SK hynix, the world's second-largest DRAM producer, has a somewhat unbalanced business structure, with DRAMs accounting for 72 percent of its sales as of the second quarter of this year and NANDs only 24 percent. For this reason, its biggest weakness is that its profits fluctuate whenever DRAM prices go up and down.
To address this problem, SK hynix acquired the Memory PCIe Card Division from Violin, a U.S. company, and the Firmware Division from Softq Development FLLC in Eastern Europe in 2014 and invested in Toshiba (now known as Kioxia) in 2017.
By taking over Intel's NAND business, SK hynix will be able to secure a relatively stable business structure as the share of its DRAM business will decrease to 60 percent while that of the NAND business will increase to 40 percent.
Samsung Electronics ranked first in the NAND market with a 33.8 percent share in the second quarter of this year, followed by Kioxia (17.3 percent) and Western Digital (15 percent), market research firm Omdia says. Intel (11.5 percent) and SK hynix (11.4 percent) took fourth and fifth place.
When SK hynix completes its acquisition of Intel, its share of the NAND market will exceed 20 percent, making it the second-largest after Samsung. In particular, SK hynix will be able to surpass Samsung in the enterprise solid state drive (SSD) market where Intel has a strength.
Intel ranked second with 29.6 percent and SK hynix fifth with 7.1 percent in the enterprise SSD market in the second quarter of this year. The combined market share of the two chipmakers will hit 36.7 percent, surpassing 34.1 percent of Samsung Electronics Co., the current number one player.
SK hynix is paying much attention to the growth of the SSD market. This segment is expected to grow at an annual average rate of 18 percent from 2019 to 2024. The enterprise SSD market is forecast to grow at an average annual rate of 23.9 percent, driving the growth of the overall SSD market. Industry insiders believe that the market for server storages where SSDs are used will double in size in 2024 compared with 2019.
On the other hand, Intel has completely reorganized its business structure to become a non-memory company as it transferred its NAND business to SK hynix. Intel is planning to invest its financial resources that will be gained through this deal in future growth engine areas such as artificial intelligence (AI), 5G networking, Intelligent Edge, and Autonomous Edge.
Meanwhile, China has welcomed SK hynix’s decision to acquire Intel’s NAND business. The transaction includes Intel's Dalian NAND Flash plant in China, the SSD business and related human resources as well as intellectual property rights. Analysts expect SK hynix to make a big investment in the Dalian plant and expand its workforce.
SK hynix’s sales generated in China rose from 33.4 percent of the company’s total sales in 2017 to 46.4 percent in 2019. As the company’s reliance on China is growing, it is expected to dial up its investment in the Dalian plant.