Intel – Micron – Apple Deal Spawns Stock Sell-off

Alas, Electronic News, we hardly knew ye: RIP. Beware the 800-pound gorilla. And beware nervous investors with itchy mouse fingers and analysts that shoot advice from the hip and and ask questions later..

The news that Intel Corp. was pairing up with U.S. memory maker Micron to make flash memory – and scored a lucrative deal with Apple Computer in the process – sent shares of other flash memory makers tumbling on financial markets around the globe Monday. The tumble continued today.

All the leaders in the flash memory market got hammered. Samsung Electronics, for example, saw its stock close last Friday on the South Korean exchange priced at 627,000 won, then open Monday up at 632,000 won. By the end of the trading day in Asia, it had dropped 621,000 won. It opened Tuesday at 611,000, and closed at the end of the day at 590,000.

A drop of 5 percent, Samsung’s market value shrunk by approximately 5.3 trillion won, or about $5 billion over the 24-hour period between the close of the Korean stock exchange Monday and its close on Tuesday.

Fellow Korean memory maker Hynix Semiconductor saw its stock suffer a similar sell-off; it dropped more than 8 percent over the course of trading Tuesday. Between the close of trading on Monday, when Hynix was trading at 23,400 won, and the close of trading today, when it closed at 21,450, it’s market value shrunk by some 867 billion won, or approximately $835.6 million.

Overall, the Korea Composite Stock Price Index dropped nearly 2 percent today, thanks in large part to the sell-off of Samsung and Hynix.

Japan’s Toshiba, meanwhile, the No. 2 flash memory player behind Samsung (Hynix is No. 3), also saw its stock plunge on the Tokyo exchange, dropping nearly 9 percent. It closed on Monday at 672 yen, opened at 642 and closed at 613 today. Between the close of trading on Monday and the close of trading Tuesday, Toshiba’s market value contracted by 190 billion yen, or nearly $1.6 billion.

Silicon Valley-based flash memory card maker supplier SanDisk Corp., meanwhile, was similarly banged up on the Nasdaq. SanDisk opened Monday at $54.27, but had dropped to $46.34 by the close of U.S. markets yesterday. In after-hours trading it recovered a bit, opening at $47.72, and in late morning trading was selling for $49.23 per share.

While it may be obvious why Sansung, Hynix and Toshiba all got blasted by a stock sell off, the reasons behind the SanDisk sell off appear more convoluted, if not downright confusing. SanDisk licenses its multi-level cell (MLC) technology to all of the NAND flash chip suppliers currently, such as Toshiba and Samsung.

While Intel lays claim to its own MLC technology, Intel is a NOR flash maker, not NAND flash, at least not until yesterday.

But the bears on Wall Street immediately cited a risk of overcapacity in the flash market with the Intel/Micron venture coming online, with many analysts further suggesting the venture would not have to pay royalties to SanDisk. Still others envisioned legal wrangles over intellectual property; Micron has said in the past that it owns Toshiba’s flash memory patents, having brought its DRAM unit previously. Wall Street analysts speculated this could lead to courtroom disputes that might in turn draw SanDisk into the fray.

But the bulls in the market declared that SanDisk could profit from the deal, as well as all the deals with Apple for a guaranteed supply of flash memory. Apple will further drive prices of NAND flash down, or so the bullish speculation goes, and more flash memory suppliers will turn to low-cost MLC technology, improving the licensing revenue stream for SanDisk.

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.