Intel has completed an 18 month turnaround out of NOR flash into a strong, if not quite dominant, position in the lucrative NAND flash market by contributing its NOR business to a joint venture with ST Micro this week.
NOR flash has been used broadly in industrial controllers, PCs and cameras, etc.. but especially in mobile phones. NOR is flash memory which is fully non-sequential in its ability to access memory, while NAND flash is cheaper to make and performs better on sequential tasks such as playing out video or music.
The market for NOR Flash is in decline, down to $1.9 billion in the last quarter, and if it is profitable it is only just. Last year NAND flash overtook it, and with that ceded a considerable market lead to the dominant NAND flash maker Samsung, allowing it to take Intel’s title as the largest semiconductor manufacturer in the world.
Researcher iSuppli now says that there will be a gradually drift out of NAND into DRAM and that many memory suppliers are already shifting capacity to DRAM during 2007
However devices like iPods are what has been holding up NAND flash and increasingly as large stores of multimedia are required on handsets, we think the demand will continue to increase.
Intel made its swoop into NAND flash back in November 2005 when it became one of the 5 suppliers to Apple for its iPods, and was paid $250 million up front, as was US memory maker Micron. Intel and Micron swiftly put their respective NAND businesses together, meaning they had $500 million of Apple’s money between them, and said they would spend a total of $5.2 billion together developing a new NAND product line, which they brought out last August, jumping ahead of the technical capabilities of market leader Samsung.
This deal was struck in preference to Apple plowing $3.8 billion into a new flash memory plant purely for Samsung, a change of heart that Samsung has never quite forgiven Apple for.
Now Intel is completing the transition, and will donate its NOR flash patents, designs and manufacturing capability to create a new joint venture which is self managed, with ST Micro and private equity group Francisco Partners. The way the deal is structured this looks like a graceful exit from a declining business, certainly for Intel, but perhaps also for ST Micro.
ST Micro will own 48.6% of the combined venture and get a $468 million cash payment at close, with Intel getting 45.1% and a $432 million cash payment, and the remaining shareholding (6.3%) to Francisco Partners which will invest $150 million. The firm will take out a $1.3 billion loan, to make the payments to the two companies and will make its headquarters in Switzerland.
ST Micro already partners with one of Intels rivals in NAND flash, China’s Hynix, which itself also got a $250 million chunk of the Apple iPod business back in 2005.
The new, unnamed NOR Flash business generated around $3.6 billion of revenues last year, but the market is declining financially at more than 10% per annum. So it has an open remit to use the various Intel and ST Micro patents to also enter the NAND market under its own steam, but says it will remain focused on the handset industry. This is possible because ST Micro wants out of the NAND business and so has donated that part of its intellectual property also. The combined company might look like it is a potential acquisition down the road for ST’s NAND partner Hynix and it perhaps being moved to an arms length distance from the two companies so that the private equity players can do their thing, and sell it on.
Intel will not have contributed all of the intellectual property that it relies upon for making NAND Flash because it doesn’t own it all. Some resides in its partner Micron, which itself bought memory controller designer Lexar Media, last year, in the end paying around $850 million in Micron shares.