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Micron to Buy Lexar in $688 Million Deal

Posted on: Thursday, 9 March 2006, 21:00 CST

By Dan Goodin Associated Press

SAN FRANCISCO -- Micron Technology Inc. said Wednesday it will acquire flash memory maker Lexar Media Inc. for about $688 million in stock as it tries to leapfrog competitors by moving its products into retail stores.

Boise-based Micron, which started selling NAND flash memory 14 months ago, said acquiring Lexar will boost its position in the market for the microchips, which are used to store data in cell phones, digital cameras and music players such as Apple Computer Inc.'s iPods.

The $10 billion NAND flash market is dominated by Samsung, which accounts for more than half of that amount, while Micron's share is about 5 percent, said Douglas Freedman, an analyst at American Technology Research.

Lexar, which currently resells many Samsung products, is attractive to Micron because it is one of two major brands of flash memory sold in retail stories, he said.

"What they bought was a brand," Freedman said. "They bought the ability to sell Lexar-branded memory."

Michael Sadler, Micron's vice president of worldwide sales, largely agreed.

"By acquiring Lexar, it gets us all the way there by having access to every consumer in the world through a vast array of retail markets," he said in an interview.

Lexar, which recorded a $73 million loss in 2004 and forecast a loss of up to $23 million for the quarter that ended in December, has struggled to make money amid steep price cuts. The company does not make the silicon wafers that form the basis for NAND flash memory and has relied on subcontractors -- including competitors -- to supply the guts for many of its products.

The acquisition will strengthen Lexar's hand by giving it cheap access to Micron's NAND chips, lowering its costs and posing a serious threat to rival SanDisk Corp., Goldman Sachs analyst James Covello wrote in a report.

The acquisition also gives Lexar greater access to cell phone manufacturers, which Micron has been courting, Tristan Gerra analyst Robert W. Baird wrote. He predicted a decline in Sunnyvale-based SanDisk's stock as a result of the acquisition.

Micron and Intel Corp., the world's biggest chip maker, announced plans in November to plow at least $5.2 billion over the next three years into a jointly owned company to design and produce flash chips. The Micron facility in Lehi is part of that venture.

Wednesday's deal will have no effect on the companies' plans to continue the venture, Intel spokesman Chuck Mulloy and Micron spokesman Dan Francisco said.

Lexar shares gained $1.74, or 25 percent, to close at $8.83 Wednesday. Shares of Micron lost 11 cents, to $14.87. SanDisk fell $2.55, or 4.5 percent, to close at $53.95.

Contributing: Christopher Smith

Source: Deseret News (Salt Lake City)

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