Intel (INTC), Micron (MU) expand NAND flash memory JV

February 29, 2012 — Intel Corporation (NASDAQ:INTC) and Micron Technology, Inc. (NASDAQ:MU), entered into agreements to expand their NAND Flash memory joint venture relationship, wherein Intel will sell its stake in 2 semiconductor fabs to Micron, IMFS and IMFT.

The agreements, which are designed to improve the flexibility and efficiency of the joint venture, include a NAND Flash supply agreement for Micron to supply NAND products to Intel and agreements for certain joint venture assets to be sold to Micron. Under terms of the agreement, Intel is selling its stake in two wafer factories in exchange for approximately $600 million — the approximate book value of Intel’s share. Additionally, Intel will be receiving approximately half of the consideration in cash and the remaining amount will be deposited with Micron, which may be refunded or applied to Intel’s future purchases under the NAND Flash supply agreement. The agreements also extend the companies’ successful NAND Flash joint development program and expand it to include emerging memory technologies.

As part of these agreements, Micron will increase its share of the overall NAND Flash output and optimize its global manufacturing network by purchasing the assets of IM Flash Singapore (IMFS) and the IM Flash Technologies (IMFT) assets in Manassas, VA. Micron has needed to obtain more capacity as NAND continues to grow as a percent of sales. Purchase of Intel’s stake in IMFT (VA fab only) and IMFS together adds an incremental ~29K wspm," said Barclays Capital in its analysis of the deal.

The announcement comes in the same week that a major DRAM competitor to MU, Elpida, filed for bankruptcy protection.

Micron has also agreed to supply Intel with NAND Flash memory from its facilities. The IMFT joint venture NAND manufacturing facility in Lehi, Utah, will continue to operate with minimal changes to its existing operations. The facility is currently in production on the companies’ industry-leading 20nm NAND Flash memory technology. The transaction is expected to close during the first half of this year, subject to certain conditions. "The new NAND Flash supply agreement with Micron gives Intel better flexibility to meet growing demand for SSDs and other products," said Robert Crooke, Corporate Vice President and General Manager of the Non-Volatile Memory Solutions Group, Intel.

"The deal solidifies INTC’s commitment to NAND thru 2024 while extending the JV to include Emerging Technologies," added Credit Suisse analysts approvingly.

Memory chip analyst’s take
Objective Analysis, a semiconductor market research firm, put out an alert with its analysis of the deal:

With few exceptions Intel is not a NAND flash chip supplier. Although Intel does ship NAND flash chips to its partners, this largely boils down to one company, its partner Hitachi GST. Hitachi ships SSDs based on Intel NAND and a Hitachi rendition of Intel’s SSD controller chip. Intel does not compete in the NAND chip business against the four other NAND chip suppliers: Samsung, Toshiba, Hynix, and Micron.

Since it doesn’t compete in NAND chips, Intel doesn’t want to get into the same difficult situation that SanDisk faced in October 2008. At that time SanDisk had too much capacity for its needs, and had no existing means of selling excess raw NAND flash chips (chips sold without controllers) on the open market, that is, it had no raw NAND chip sales channels, no existing customers for raw NAND flash chips, and no internal support system for raw NAND chip sales. All of these would have been very costly to develop in order to solve a short-term problem and would establish the company in a business in which it had no interest.

SanDisk solved this problem by selling a significant share of its interest in joint venture fabs to partner Toshiba, with an agreement to purchase chips from the JV in the future. Intel is taking the same steps.

This is not a big change for Intel. The company has not made follow-up investments in its Singapore joint venture fab, IMFS, since IMFT’s existing capacity has been sufficient for Intel’s SSD needs, and process migrations have partly offset the need to add capacity. Both Intel and SanDisk built NAND manufacturing capacity to satisfy overblown growth expectations for the SSD market. The SSD market has grown more slowly than these companies expected, and they subsequently require less NAND than they planned, so they are taking steps to match their capacity to their needs.

Micron has shown interest in increasing its presence in the growing NAND market as an offset to its ailing DRAM business. Last quarter Micron’s profits came largely from its NAND flash business. For a quite reasonable sum Micron is increasing its capacity. But that’s not the only reason that Micron is pursuing this deal.

The limit to NAND scaling is approaching. Even though it is still unclear when NAND flash will reach its inevitable scaling limit, NAND manufacturers have started to communicate their plans for a successor to this technology. SanDisk and Toshiba seem to be going in different directions, with SanDisk promising ReRAM and Toshiba MRAM. Although Hynix and Samsung have been less vocal, Samsung’s acquisition of Grandis in August 2011 indicates that this is the company’s intended direction.

Intel is an R&D powerhouse and performed significant research on alternative memory technologies before Numonyx was spun off in 2008. Objective Analysis believes that this research continued at Intel after the spin-off. By teaming up with Intel for R&D Micron will be able to tap into this expertise to its benefit after NAND reaches its scaling limit.

Overall we do not anticipate for this restructuring to impact either company’s customers or competitors. Although the JV is being restructured, manufacturing capacity will proceed along its current course, and there will be no availability upsets. The two companies are simply grooming this agreement to fit their businesses as it has matured over the past six years.

Intel (NASDAQ: INTC) is a world leader in computing innovation. The company designs and builds the essential technologies that serve as the foundation for the world’s computing devices. Additional information about Intel is available at www.intel.com.

Micron Technology, Inc., is one of the world’s leading providers of advanced semiconductor solutions. Micron’s common stock is traded on the NASDAQ under the MU symbol. To learn more about Micron Technology, Inc., visit www.micron.com.

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