WSJ account of transaction:
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The Wall Street Journal Interactive Edition -- June 19, 1998
Texas Instruments Sells Off Chip Unit
To Micron Technology for $800 Million
TI Will Cut 3,500 Jobs, 8% of Work Force,
In Wide-Ranging Restructuring Program
By BILL RICHARDS and EVAN RAMSTAD
Staff Reporters of THE WALL STREET JOURNAL
Texas Instruments Inc. said it will sell its struggling memory-chip business to Micron Technology Inc. and lay off about 8% of its work force, reflecting overcapacity of chips that has sent prices plunging.
The sale will leave Micron, along with International Business Machines Corp., as the last U.S.-based makers of the most widely used type of memory chips, dynamic random-access memory chip or DRAMs, which store computer information. The memory chip was invented by Intel Corp., which left the business in 1986 because of punishing price competition from Japanese makers. More recently, South Korean and Taiwanese companies have pushed down prices, pummeling the entire market.
Memory chips were once the Dallas-based company's largest semiconductor product, but in the first quarter, the chips accounted for 10% of TI's $2.19 billion in revenue. TI incurred a loss of $129 million on its memory-chip business in the quarter.
Under the agreement, Micron will pay $610 million in stock and notes for TI's memory assets and will assume an additional $190 million of debt associated with TI's Italian memory-chip operation.
Pledge of $750 Million
In return, TI pledged $750 million in financing to help Micron assume the memory business. In addition to an Italian wafer-fabrication plant, Micron will get two other chip facilities in Richardson, Texas, and in Singapore. It also will assume TI's interest in two joint ventures, one in Singapore and one in Japan. Currently, TI owns 25% of each joint venture and gets 100% of their production.
Texas Instruments also said it plans to lay off 3,500 of its 44,100 employees and close several plants in an across-the-board cost-cutting move. The company said it plans to record an unspecified charge against second-quarter earnings to pay for the cuts, which it said are expected to yield $270 million in annual savings.
Separately, Micron reported a fiscal third-quarter loss of $106 million, or 50 cents a share, on sales of $610 million. In the year-ago quarter Micron earned $96.8 million, or 45 cents a share, on sales of $965 million.
First Call analysts had expected Micron would report earnings of 46 cents a share for the quarter.
Micron said that while it increased overall unit sales of its memory chips by 45% over the second quarter, prices of the chips fell by 30%, leaving the company's semiconductor memory operation with a loss of 45 cents a share on sales of $290 million. The quarter included a $30 million write-down of memory inventories.
The announcements were made after the markets closed and neither company was available for after-hours trading, according to Instinet. In New York Stock Exchange composite trading Thursday, TI closed at $54.50, up $3.625, or 7.1%; Micron closed at $22.1875, up 68.75 cents, or 3.2%.
Bill Aylesworth, Texas Instruments' chief financial officer, said TI needed to cut jobs due to weakness in the overall semiconductor business and because it hadn't adequately reduced support staff as it sold assets during the past two years. TI's memory-chip operations employ 4,700 and all will transfer to Micron except 600 who work at a plant in Richardson, which is being closed.
"We have taken actions to reduce our overhead as we were making the divestitures, but the cumulative effect of all of those changes plus the current weak market conditions have necessitated this action," he said.
Mr. Aylesworth said the company will own 12% of Micron, a stake that could rise to 16% if the memory-chip market rebounds and Micron's stock appreciates. "We think that's a valuable position to have in what clearly is the world's premier DRAM maker," Mr. Aylesworth said. Of the deal in general, Mr. Aylesworth said: "We feel it gives us the prospect of greater financial stability in the future."
Steven Appleton, Micron's chairman, chief executive officer and president, said the acquisition of TI's memory assets would enable his company to gain existing semiconductor manufacturing capability without significantly increasing research and development, administration or operating costs.
"This strategic acquisition will enhance Micron's position as the most cost-effective memory producer in the world," Mr. Appleton said. Micron is based in Boise, Idaho.
Analysts said both TI and Micron stand to gain from the deal. Drew Peck, an analyst at Cowen & Co., said TI is likely to take a large charge for selling over $1 billion in assets to Micron for $800 million. By also taking a stake in Micron, Mr. Peck said, TI will gain if Micron's stock begins to rise. That is likely, he said, because Micron will have received assets at well below book value, giving it a significant competitive advantage. "In effect," Mr. Peck said, "TI got the best of all worlds."
Micron has about $700 million of cash, but didn't want to pay for TI's memory operations outright. Instead, the acquisition was structured as a complex amalgam that includes 28.9 million shares of Micron common stock, a $740 million note convertible into 12 million shares and an additional $210 million note. However, Micron said the market value of its notes will be substantially less than their face value. Currently, Micron has 212 million shares outstanding.
10-Year Licensing Pact
Micron and TI also signed a 10-year royalty-free cross-licensing agreement for their memory-chip patents with TI retaining ownership of its related patents.
The deal leaves Micron as one of the last two U.S. companies standing in a semiconductor market that has seen bruising competition and price slashing. The memory business enjoyed a boom in the mid-1990s that made Micron one of the world's most profitable companies, but South Korean and Taiwanese manufacturers later glutted the market.
Last year, Micron filed complaints with the U.S. Department of Commerce and the International Trade Commission, alleging that Korean and Taiwanese makers were dumping their memory chips in the U.S. market at below costs.
The Asian currency devaluations added to the price-cutting, by encouraging Asian makers to drop their prices to get much-needed dollars. Prices of DRAM chips dropped 60% from the first quarter of 1997 to the first quarter of this year.
Motorola Inc. dropped out of the business last July after its market share fell to just 2%.
In the past two years TI has shifted its focus from memory chips to computer chips known as digital signal processors, or DSPs. They are used to run the basic functions of wireless phones, modems, hard drives and other devices and are the fastest-growing segment of the semiconductor industry. TI has a 45% share of DSP sales.>>> |
