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Intel, Micron to form flash memory venture

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CIOL Bureau
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Robert MacMillan and Duncan Martell

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NEW YORK/SAN FRANCISCO: Intel Corp. and Micron Technology Inc. on Monday said they will form a widely anticipated venture to make flash memory chips for consumer electronics, removable data storage and handheld communications devices.

Intel and Micron also said Apple Computer will pay each company $250 million for a "significant portion" of their share of the venture's NAND flash memory output. Flash memory chips retain data stored on them when power is cut off.

The announcement dragged down the shares of memory chip maker SanDisk Corp., which analysts viewed as the company likely to be most hurt by the deal. SanDisk stock tumbled $9.23, or 16 percent, to $46.97 on Nasdaq.

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"This is negative to SanDisk," said Ashok Kumar, an analyst with Raymond James & Associates. "With the big boys muscling in, it's going to be a bare knuckles fight and the primary beneficiary will be consumers as prices come down at a faster clip."

Intel and Micron will contribute about $1.2 billion in cash, notes and other assets to form the company, dubbed IM Flash Technologies LLC. Intel, the world's largest chipmaker and Micron, the No. 3 chipmaker, also plan to pay an additional $1.4 billion each into the company over the next three years.

Micron will own 51 percent of the new company, and will consolidate financial results on its balance sheet and there are no plans to take IM Flash Technologies public, said Intel spokesman Tom Beermann.

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"It's really about seeing opportunities in a very fast-growing and important marketplace," Beermann said, adding that the sole purpose of forming the entity is to serve as a manufacturing company for Intel and Micron.

As the amount of data that can be stored on flash memory chips increases, they are being used in a widening array of consumer electronics and computing devices, such as the iPod nano and the iPod Shuffle from Apple Computer Inc.

"It sounds like it is a new company that is going to do other things, but the first and largest customer is Apple, and it is likely to be the largest customer for a while," said Eric Ross, an analyst at ThinkEquity Partners.

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The announcement comes as Apple on Monday said it would prepay $1.25 billion in the next three months as part of a deal to stock flash memory components used in its iPod digital music and video players.

In addition to Intel and Micron, Apple made deals for a supply of flash memory chips and components through 2010 with Hynix, Samsung Electronics and Toshiba Corp.

Micron benefits from the deal because it can take advantage of Intel's existing relationship with Apple, said analyst John Lau at Jefferies & Co. Intel, meanwhile, can take advantage of Micron's manufacturing centers.

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Micron Chief Executive Steve Appleton, amid speculation of a tie-up with Intel, told a Reuters Summit on Nov. 2 that the company saw partnerships as a key strategy to improve its financial performance.

Appleton said the computer industry would move in coming years to using flash memory instead of hard disk drives for primary storage devices in notebook computers.

Micron has been helped by surging sales of NAND flash memory used in portable devices such as mobile phones, digital cameras and music players. Appleton said he expects flash memory to replace disk drives in notebook computers within five years as prices decline.

That would bring dramatic increases in battery-powered computer operation since flash memory, with no moving parts, uses far less energy than hard drives with spinning disks.

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Makers of mobile phones, music players and other portable digital devices are increasingly using NAND memory because it is suitable for pictures and music downloads and is cheaper than the technology used in Intel's flash memory, called NOR.

IM Flash will manufacture its products exclusively for Santa Clara, California-based Intel and Micron.

Initial production is expected to start in early 2006 at several Micron facilities, including one in Manassas, Virginia, that Micron said it is expanding.

Other plants will be in Boise, Idaho, where Micron is based, as well as Lehi, Utah.

Dave Baglee, who previously was manager of Intel's chip plant in Rio Rancho, New Mexico, and Rod Morgan, who most recently was manager of Micron's Manassas chip plant, will jointly run the new company.

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