Micron Technology Inc, the second-biggest computer memory chipmaker, may take over struggling Hynix Semiconductor Inc of Korea, vaulting the US company to the top of the US$30 billion-a-year industry.
"Within a month, we will know whether a merger is possible," said Park Chong-sup, Hynix's chief executive officer.
Micron spokesman Sean Mahoney said "everything is on the table" in talks that started last week.
Micron and Hynix together would overtake Samsung Electronics Co as the largest maker of DRAM chips.
Some investors said Micron may balk at buying a company that's losing money, is 8.64 trillion won (US$6.8 billion) in debt and is seeking its second multibillion dollar bailout in six months.
Merger talks "may be helping Hynix and its creditors' shares today but it's still very unclear whether this company is going to survive," said Cha Jeong Hwan, who doesn't own Hynix stock in the 80 billion won he manages at Dime Investments Ltd. "The key is competitiveness and Hynix still doesn't have much."
Hynix shares rose 15 percent to 2,465 won, their highest close since July 5. While the shares nearly doubled since Nov. 1, they are still half the 5,850 won price at the start of the year. Micron stock, down 23 percent this year, fell 2.5 percent to US$27.16 on Friday, before the announcement of talks.
Creditors last week recommended an alliance with another chipmaker to revive Hynix. Micron and Hynix make chips that are the main memory for computers working along side processors made by Intel Corp, the world's largest semiconductor company.
Micron's market value of US$16 billion dwarves the US$2 billion of Hynix, suggesting a merger of equals is unlikely.
"We cannot completely rule out the possibility of Micron taking over Hynix," said Lee Young Jin, chief credit officer for Korea Development Bank, Hynix's biggest creditor. "The two companies will probably look at a wide variety of options such as technological cooperation, equity stake investment, equity swaps and other methods."
All DRAM makers reported losses in their most recent results as the price for the chips is now less than the cost of production. DRAM sales are forecast to shrink as much as 67 percent this year, driving consolidation that started in Japan, where NEC Corp and others closed plants or merged operations with rivals.
While a takeover would enable Micron to compete with Samsung and others, some analysts say the sale of some Hynix assets or the purchase of a stake is more likely.
"My best guess is the sale of assets or Micron taking a small stake," Jay Kim, an electronics analyst at ING Baring Securities in Seoul, said.
"A merger would not be such a high priority as there are so many interested parties: so many creditors and shareholders."
Creditors of Hynix agreed last week to swap 3 trillion won of its debt into bonds convertible into the company's stock as part of a more than 7 trillion won bailout that Hynix has been seeking since July, a month after the company received a rescue package worth more than US$4 billion.
The company had a loss of 3.7 trillion won in the first nine months of the year.
The spot price of the industry-standard 128 megabit DRAM chip is down 75 percent this year and recently traded at US$1.46 per chip, about a third less than analysts estimate the chip costs to make.
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