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November 21, 2005

Intel and Micron forge new flash memory company

Seeking a path into the budding NAND flash memory market, Intel Corp has announced a NAND manufacturing joint venture with Micron Technology Inc.

By CBR Staff Writer

The new company, called IM Flash Technologies LLC, will exclusively make flash for Intel and Micron for consumer electronics, removable storage and handheld communications devices.

For Boise, Idaho-based Micron, already a NAND flash maker, the JV enables it to expand its factories and better compete against the Asian companies that dominate the market.

For Intel, the deal is a way to diversify from its existing NOR memory business, which is part of an industry niche that is being nibbled at by NAND in some applications, and to cash in on the upward NAND trend.

Apple Computer Inc has already lined up to buy a significant portion of IM Flash’s memory. The companies said Apple had agreed to prepay $250m each to Intel and Micron for supply.

Apple and its trendy iPod has been a major force in the NAND market, having inked a deal to buy as much as 40% of NAND from market leader Samsung Electronics Co Ltd in the second half of this year.

NAND shortages have resulted, to the point that some small and mid-sized MP3 makers in Asia have closed shop this year because they simply couldn’t get enough NAND.

Next year, Apple may well drive as much as 25% of global NAND sales, projected research house iSuppli Corp.

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The creation of IM Flash will help meet Apple’s NAND appetite and ease shortages elsewhere. This is good news for buyers, said Nam Hyung Kim, a principal analyst at iSuppli.

Intel and Micron declined to comment on expected output, but Micron’s chief executive said he expected IM Flash to become of the top suppliers of NAND during the next three years.

Micron will, at least, be able to produce more NAND by partnering with Intel. We haven’t had the capacity to take advantage of the market, said Micron spokesperson Don Francisco. At the end of Micron’s most recent fiscal quarter, which ended in September, the company saw a fivefold increase in its NAND business.

The JV enables Intel to swiftly enter the NAND market, said Intel spokesman Tom Beermann. We can skip several steps in learning how to manufacture and build these particularly memory chips, he said. Essentially, it allows us to get to market more quickly.

Beermann said NAND was replacing NOR in certain applications, but that the new NAND venture would be complimentary to Intel’s existing NOR business.

The global market for NAND lagged NOR last year, but this year is expected to outpace it. iSuppli projects $10.8bn in NAND sales this year verus $6.5bn from NOR. By 2009, NAND is expected to reach $26.3bn versus NOR’s $7.5bn.

Another way to think about it is that NAND is on a 32% annual growth trajectory while NOR will decline 1.8% through to 2009, according to iSuppli.

In part that’s because NOR, which is optimized for code storage, increasingly is being squeezed by NAND in handheld consumer applications. NAND is optimized for data storage but can be used for code storage when used with a controller. NAND has a far greater storage capacity than NOR and is also much cheaper.

But using NAND in a mobile phone has been cost-prohibitive, in part because of design complexities. Until now, the cell phone market has been a sweet spot for NOR. But as the prices of NAND fall — which they are expected to do when supply eventually catches up with demand — that may well change.

Micron’s Francisco, for instance, said IM Flash would help Micron’s ability to address the mobile phone market.

NAND also is beginning to displace mini hard disk drive technologies. Apple’s iPod is a notable example, as well as other MP3 players. While HDD currently is cheaper than NAND, it consumes roughly 30 times more power consumption than NAD, said iSuppli’s Hyung Kim.

NAND is also can absorb knocks and bumps better than HDD, and is also lighter and smaller, he said.

Currently, Micron ranks fifth in the global NAND market, with a 3.4% share, iSuppli said. Samsung of South Korea strongholds a 50% stake, followed by Japan’s Toshiba Corp, with its 28% grip. Hynix Semiconductor Inc, also of Korea, has a 13% share.

Initially, IM Flash will manufacture its wares in the US using existing Micron facilities. The company’s Boise, Idaho facility already manufacturers NAND and that capacity would become IM Flash’s.

Micron’s Manassas, Virginia facility is currently running at half capacity with DRAM production. In the second half of next year, the remaining capacity will become IM Flash’s.

IM Flash’s third facility, in Lehi, Utah, will be the only solely devoted IM Flash factory and is expected to go online in early 2007.

Micron’s Francisco said IM Flash would use its existing US facilities because it made business sense. That is, it was a faster path to market that building elsewhere.

However, looking ahead, he said the market is going to dictate where IM Flash goes.

As part of the deal, Intel and Micron would each pay about $1.2bn in cash and assets to IM Flash. During the next three years they will plough in an additional $1.4bn each. Micron would become the majority stakeholder, with a 51% ownership.

Dave Baglee, who previously managed Intel’s New Mexico chip fab, and Rod Morgan, Micron’s Virginia fab’s previous manager, will head IM Flash.

Formation of the company likely will be finalized by the new year.

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