Cost and operational synergies will enable the pair to better compete in the flash market, which has recently suffered from bloody pricing wars, razor-thin margins and excess capacity. Separately, Intel and STMicro posted losses for their memory units in their most recent fiscal quarters.
The enterprise value of the [combined] entity would be about $3bn, Intel VP Brian Harrison, who will become chief executive of the new company, on a conference call.
The new company also will combine different types of memory semiconductors for mobile phones, computers, cameras and other devices, he said.
The unnamed company will have the necessary scale, resources and breadth of technology to be successful, according to Harrison. That includes phase-change memory, or PCM, which may expedite the benefits of advanced flash technology to customers.
The potential for synergies are enormous, STMicroelectronics CEO Carlo Bozotti, also on the call. The new company will receive level of scale needed to succeed … level of scale is a criterion for this segment of the semiconductor market.
The new company, which will be based in Geneva, Switzerland, will focus entirely on embedded and wireless flash memory.
STMicro will sell its NOR assets, including its stake in a joint venture with Hynix Semiconductor in China, as well as its NAND business to the new company, for $468m in cash, giving it a 48.6% equity stake. Intel will add just its NOR assets and receive $432m in cash and 41.5% ownership.
Intel’s NAND business is tied up in a manufacturing joint venture with Micron Technology, which it announced in late 2005 to create the company IM Flash Technologies. IMFT exclusively makes flash for Intel, the world’s largest chipmaker, and Micron for consumer electronics, removable storage and handheld communications devices.
However, Intel Capital president Arvind Sodhani said he didn’t believe the new company would compete with IMFT.
Harrison clarified: The primary focus of the company will be around wireless business delivering stacked and mixed solutions across the entire range of NOR, mixed NOR/NAND and NAND-only solutions in the wireless space, he said. In addition we will focus adjacent to the wireless space with other embedded apps. It’s currently not our intention to go into the mass broad NAND market.
NAND is a fast-growing industry niche that is nibbling away at NOR in some applications. NOR is optimized for code storage, and increasingly is being squeezed by NAND in handheld consumer applications, including mobile phones. 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. As such, the fortunes of NOR are now fading.
The deal includes a $150m investment from Silicon Valley buyout fund Francisco Partners, giving it a 6.3% stake.
The new company, which also will compete with Samsung Electronics, will employ 8,000 workers worldwide, split evenly from the two companies. Its global salesforce will have more than 300 workers. Stacy Smith, Intel assistant CFO, said there would be increased restructuring charges as a result of some job cuts and job allocations as part of the deal. He said Intel would provide an updated forecast in the not-too-distant future.
The companies said they had secured a $1.3bn loan that would pay for assets and be used for working capital.
VP of STMicro’s flash unit Mario Licciardello will become COO of the combined entity. The deal is subject to regulatory approval and is expected to close by the end of the year.
