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Intel frees Flash biz

Goes Swiss with STMicroelectronics

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Intel has followed AMD's lead by creating a separate flash memory business with a partner.

Intel and STMicroelectronics have signed an agreement to create an independent flash memory company based in Geneva. The new venture could have annual revenue of up to $3.6bn and will create products for mobile devices such as MP3 players and digital cameras. Rival AMD made a similar move in 2005 with the IPO (initial public offering) of Spansion - previously a joint venture with Fujitsu.

The move to create a separate flash business follows years of struggles at Intel to turn consistent memory profits.

"Previously, our objective was for the flash business to become profitable or to look for an alternative," said Intel spokesman Tom Beermann. "We haven't achieved that goal of profitability, and this is seen as the best path to follow."

STMicroelectronics will ship its flash assets, including NAND and NOR technology, to the new company, while Intel will ship its NOR assets. Intel will take a 45.1 per cent stake in the venture, while STMicroelectronics will take 48.6 per cent. Francisco Partners, a Silicon Valley-based private equity group, will invest $150m for a 6.3 per cent stake.

The three parties expect the new venture to start in the second half of this year, as long it meets regulatory approvals.

Close to 4,000 Intel workers would join the venture, which will employ 8,000 people.

In its most recent quarter, Intel reported flash memory revenue of $469m and a net loss of $283m from the unit. Intel lost $638m from the flash memory business during fiscal 2006 on revenue of $2.2bn.

AMD formed Spansion, in part, to offset pricing pressure from Intel. Some analysts saw Intel pricing its flash products very aggressively to undercut AMD's memory and processor gains.

Unable to beat up on AMD directly, Intel now appears willing to bet on the partnering approach with memory. The combined Intel/STMicroelectronics business would have more volume and sales muscle than Intel on its own.

Intel will still sell NAND memory through IM Flash - a joint venture with Micron.

Intel famously quit the memory business in 1985 due to increasing pressure from Asian suppliers and decided to concentrate on selling processors. That difficult move has been hailed as one of the greatest business decisions - made by Andy Grove and Gordon Moore - of all time. ®

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