SK Hynix to Acquire Intel’s NAND Memory Business

October 22, 2020 by Luke James

US chipmaker Intel is selling part of its NAND memory chip business to SK Hynix for $9 billion in a deal that will see the South Korean semiconductor supplier become the world’s second-largest flash memory chipmaker.

In a recent press release, SK Hynix and Intel jointly announced that Intel will be selling the entirety of its NAND memory business

The deal, which currently has Intel’s NAND holdings valued at $9 billion, will see Intel transfer over the NAND business in two parts with Seoul-headquartered SK Hynix acquiring all IP, facilities, and employees related to Intel’s NAND efforts over the next five years. This includes the NAND SSD business, the NAND component and wafer business, and the NAND memory manufacturing facility in Dalian, China.


Not Entirely Unexpected

This sale is the latest in a series of adjustments as Intel leaves behind non-core activities, marking the company’s departure from a market that has long been seen as non-strategic. Indeed, the U.S. chipmaker has been looking to get out of the business for quite some time, a desire driven by falling prices for flash memory and troubles turning a profit. 

For four of the last five years, Intel, a company known for its strong gross margins in other areas, has recorded flat or negative operating incomes for its NAND business, and only in the last six months has the company made any money from it, reporting $600M in operating income for Q1 and Q2 2020. 


NAND's contract prices

NAND's contract prices. Image used courtesy of Coughlin Associates and Forbes

Unfortunately, Intel has never been as successful in the NAND market as they probably would have hoped. Since one of Intel’s core NAND efforts—their IMFT joint-venture with Micron—was scaled back in 2018, the company has famously struggled with its NAND business, only managing to secure the number six spot that year for global NAND flash market share behind SK Hynix, Samsung, Micron, and others.


A Sale in Two Parts

Under the first phase, which will take place next year once approved by the necessary regulatory bodies, SK Hynix will pay $7 billion to Intel for their SSD business and the Dalian NAND fab. This will transfer Intel’s consumer and enterprise SSD businesses to SK Hynix, along with all relevant IP and SSD business employees, but no NAND or IP employees. And while SK Hynix will acquire the Dalian fab, the employees working at the facility aren’t included. 

After the first phase, Intel will continue to develop and manufacture NAND out of the Dalian fab until roughly early 2025 when the deal is expected to fully close. At this time, SK Hynix will pay Intel a further $2 billion for the remainder of their NAND business and will see all of Intel’s NAND IP and related employees transfer to SK Hynix, along with the employees at the Dalian fab. 

At this stage, neither party has provided any rationale for the staggered acquisition.


Intel will be carrying on with the development of its “Optane” memory solutions

Intel will be carrying on with the development of its Optane memory solutions. Image used courtesy of Intel


Intel won’t be selling its Non-Volatile Memory Solutions Group as part of this deal. The company will instead be holding on to this as it continues to develop and sell its Optane memory technology. This shouldn’t come as much of a surprise; Optane is a key part of Intel’s plans to consolidate its leading position in the data center infrastructure market. 


New Opportunities for SK Hynix

Meanwhile, the deal will create plenty of new opportunities for SK Hynix, making the company one of the world’s largest NAND memory makers. Combined, SK Hynix and Intel’s market share was more than 20% in Q2 2020, trailing only their rival South Korean firm and market leader Samsung Electronics Co., which holds over 30% of the market. 

By acquiring Intel’s Dalian-based NAND fab, it’s not unrealistic to expect that SK Hynix could scale up their operations to deal with the competition of its remaining rivals and go for the market top spot.


SK Hynix may advance in NAND memory technology from the acquisition

SK Hynix may advance in NAND memory technology from the acquisition. Image used courtesy of Nikkei Asia

That being said, SK Hynix is more than capable of building more of its own fabs if it wanted more NAND manufacturing capacity. What SK Hynix doesn’t have, however, is a huge SSD business. This is what appears to be the most valuable part of the deal for SK Hynix; the company specifically mentions this in the joint press release. 

Intel’s presence in the enterprise SSD market, which was achieved with clever early investment and dominance in enterprise CPU sales, will put SK Hynix in a much better position to chase its biggest rival, Samsung, as this was Intel’s only major competitor in the SSD market.

In the long term, however, we’ll have to wait and see what SK Hynix plans to do with the NAND fab side of the acquisition.