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Intel, Micron Get Together For Flash

UPDATED:Intel and Micron today agreed to form a new company to manufacture NAND Flash memory, the storage technology used in iPod digital music players, USB drives and smartphones.

IM Flash Technologies, LLC, will only manufacture products for Micron and Intel, two chipmaking giants with enough capital, intellectual property and personnel to snatch a good portion of the NAND market.

IM Flash Technologies combines Micron's NAND development acumen with Intel's multi-level cell technology and Flash memory innovation.

Intel and Micron said in a statement the venture will allow them "to successfully compete in the NAND flash memory business, an increasingly important and fast-growing market segment."

That's no understatement: The venture is already paying dividends.

Apple, whose successful use of NAND Flash memory has helped it sell 30 million iPods, has agreed to prepay Intel, Micron, Hynix, Samsung Electronics and Toshiba $250 million each for Flash memory products. The $1.25 billion payout is the first step in a deal that Apple will have with the five vendors through 2010.

Intel and Micron make a formidable pairing in the NAND Flash market and could eventually dominate thanks to supporters such as Apple. Investing in NAND was par for the course for a company making the most successful consumer electronic product since the Walkman.

"We want to be able to produce as many of our wildly popular iPods as the market demands," said Jobs in a statement.

NAND Flash memory is one of two technologies used in memory cards, the other being NOR . Best suited to devices requiring a lot of storage, NAND is used in USB Flash drives and MP3 players and provides the image storage for digital cameras.

NOR Flash is the preferred technology for Flash devices used to store and run code, usually in small capacities. However, NAND Flash devices offer faster erase, write and read capabilities over NOR.

Gartner analyst Joe Unsworth said the deal could have major ramifications going forward, noting that Micron had to add additional capacity to boost its presence in the NAND market.

"They've been converting their DRAM capacity over to NAND Flash, which has served them well, but they can't continue to do that forever without losing a lot of DRAM market share," Unsworth said.

The analyst said Intel is endorsing NAND to complement its NOR Flash offerings for handsets, which are requiring more data storage, and its home networking products.

"Intel is able to complement its NOR Flash business by putting in some NAND Flash and perhaps some multi-chip package, which offers them a more of a broad portfolio for the handset business," he said. "It does put them in good position to appeal to handset manufacturers."

While Intel has been doing NOR flash for handsets, nemesis AMD is blazing a trail in the NOR Flash space through the creation of Spansion LLC with Fujitsu, a partnership that parallels the new Intel-Micron venture. Spansion is already pumping out products, including the new 64 megabit Serial Peripheral Interface (SPI) device to support embedded applications.

But Unsworth expects the competition to increase between Micron, Intel and other NAND competitors like Samsung and Toshiba.

"There will be enough growth in the market to absorb all of this in the short term, but long term, we do believe this going to be a very cutthroat, competitive commodity market," he said.

He also said he expects Apple to use NAND flash to support video-based products going forward.

IM Flash Technologies will be 51 percent owned by Micron and 49 percent owned by Intel. Intel and Micron have agreed to initially contribute approximately $1.2 billion each in cash, notes and assets to IM Flash Technologies.

The parties will each contribute an additional approximately $1.4 billion over the next three years and intend to make additional investments as necessary to support the growth of the operation.

Production will begin next year in manufacturing facilities in Boise, Idaho, Manassas, Va. and Lehi, Utah.

The company will be led by Intel's Dave Baglee, who previously served as manager of Intel's Fab 11 lab in New Mexico, and Micron's Rod Morgan, who most recently served as manager of Micron's fabrication facility in Manassas.