SK hynix Takeover of Intel NAND Business Clears Final Hurdle in China

SK hynix had indicated to shareholders that its acquisition of Intel's NAND business would complete before the end of 2021. It appears to have made it by the skin of its teeth, as Chinese regulators have today given the green light to the deal. China was the last of eight jurisdictions that needed to pass the deal before it could be done, however it has attached six conditions which SK hynix must agree to.

"SK hynix sincerely welcomes and appreciates the (Chinese) State Administration for Market Regulation's merger clearance for the deal," said the South Korean tech firm in a statement. "SK hynix will enhance its competitiveness of NAND Flash and SSD business by continuing the remaining post-merger integration process."

China's conditions

China's conditions on the deal seem sensible, they ask for assurances that the merged businesses won't abuse their newfound market power. Thus they cover; pricing limits of finished products and components, supply expansion promises for output of PCIe and SATA enterprise-class components for the next five years, and matters such as product exclusivity and similar anti-competitive practices.

It was in October 2020 when the $9 billion (£6.76 billion) deal between SK hynix and Intel was agreed in principle. The deal means that SK hynix will be the owner of a wholly owned subsidiary, using ex-Intel NAND facilities, in the U.S.

Intel won't completely exit the memory business, as it will retain the lucrative Optane memory business.

U.S. based business will stay in the U.S., run as a standalone company

In August we revealed that the U.S. based entity will be run as a standalone company, wholly owned by SK hynix. Furthermore, it will get a new name / branding. It is thought that not bringing the branding in line with the existing SK hynix family will help the Intel NAND products retain their server and enterprise storage focus. It would be a misstep to lose clients in the wake of the deal by attempting to shift them to SK hynix branded solutions. In the spirit of continuance, the existing General Manager of Intel NAND Products, Robert Crooke, will stay at the helm of the U.S. based NAND business.

In a Reuters article they claim that analysts suggest that the sealed deal will help SK hynix compete better against market leading rival Samsung. The deal closes at an opportune time, and the markets responded favourably, but weren't taken aback by this news (shares up 2% on the day). Since the Intel NAND buyout intentions were announced last October, SK hynix shares have climbed by approximately 55%.

Rationalization incoming?

It remains to be seen whether the SK hynix business as a whole (including the newly acquired Intel NAND portion) is rationalized in the next few years. SK hynix hints that it is considering unifying operations such as R&D, and establishing common standard components, for the potential cost benefits such changes could deliver.