In what can be described as one of the slowest closings in recent memory, Micron (NASDAQ:MU) finally acquired Intel’s (NASDAQ:INTC) share of IM Flash Technologies, a joint venture between the two companies, for $1.25 billion. Although Micron stock rose a couple of dollars the day following the announcement, it’s since given those gains back.
The process of acquiring Intel’s non-controlling stake in the joint venture, which allows Micron to take its development of 3D XPoint technology to the next level, took a while to come together.
First announced in October 2018, the company only made the exercise of its call option to buy Intel’s share in mid-January. At the time, Micron expected to pay $1.5 billion in cash for the transaction. This included IMFT’s repayment of debt owed to Intel.
“The IM Flash acquisition will enable Micron to accelerate our R&D and optimize our manufacturing plan for 3D XPoint,” Micron CEO Sanjay Mehrotra said in its January announcement. “The Utah-based facility provides us with the manufacturing flexibility and highly skilled talent to drive 3D XPoint development and innovation, and to deliver on our emerging technology roadmap.”
Consolidated on Micron’s financial statements, IMFT sold $1.7 billion in product to Intel between fiscal 2017 and fiscal 2019. Micron doesn’t expect IMFT’s change in ownership to affect its future capital expenditures.
As alluded to in the beginning, Micron closed the deal to acquire Intel’s share on Oct. 31, a little more than a year after the news first surfaced. To finance the acquisition, Micron borrowed $1.25 billion in term loans to close the transaction.
At the end of August, Micron had just $4.5 billion in long-term debt. The addition of an additional $1.25 billion increases its debt-to-equity ratio to a reasonable 16.1%.
The last thing owners of Micron stock have to worry about is the company going out of business. Its balance sheet is in excellent health.
3D XPoint and Micron Stock
Micron launched its first 3D XPoint product on Oct. 24, and according to Reuters:
“Micron launched its Intel competitor Thursday [Oct. 24], a device it calls X100. The device itself is a solid-state drive that can be plugged directly into a server, and Micron claims it is faster than its rival due in part to a piece of technology called a controller that take instructions from the server’s computing brain about which data to read or write on the solid-state drive.”
Since Mehrotra took over as CEO in 2017, the company’s moved away from its commodity memory chips to offer storage products with new technologies such as the controllers built into the X-100.
The company feels extremely confident about its 3D XPoint technology.
“Micron’s innovative X100 product brings the disruptive potential of 3D XPoint technology to the data center, driving breakthrough performance improvements for applications and enabling entirely new use cases,” said Micron Executive Vice President and Chief Business Officer Sumit Sadana.
Given Micron’s revenues were 23% lower in fiscal 2019 and its operating income was almost half what it was in 2018, MU shareholders better hope the X-100 is the beginning of its next growth spurt.
If not, MU stock could be back below $40 in no time.
That said, I still think Micron is an excellent stock to own for the long haul.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.