SAN FRANCISCO — Numonyx was formally launched today with a new CEO and a much better financial condition than originally planned. The company takes the NOR flash memory business from Intel (NASDAQ: INTC) and NAND business from STMicroelectronics (NYSE: STM) and combines them under one, independent roof.
The main roof will be in Geneva, where STMicro’s offices were located. That means a change of address card for some Intel employees, who will be trading Folsom, Calif., for Switzerland. All told, 2,500 Intel employees are being transferred to the new company.
Heading up this company will be Brian Harrison, the former vice president of Intel’s flash memory group. Mario Licciardello, the corporate vice president of STMicro’s flash group, will be chief operating officer of Numonyx.
With the combination of the two companies, Numonyx is the largest provider of NOR flash memory in the world and the largest flash supplier to the mobile phone market.
The Numonyx spin-off was announced almost a year ago and was supposed to have been completed sooner, but the credit crunch hurting so many businesses also impacted the spin-off. The company will be better off for it, however.
Originally, Numonyx would be spun off with $1.3 billion in debt, $900 million of which would have been a dividend to the parent firms. Instead, Numonyx is spun out with $450 million in debt, thanks to debt financing at closing from Intesa Sanpaolo and Unicredit Banca d’Impresa in addition to a $100 million committed revolving-credit facility.
Intel will own 45.1 percent of the company, STMicro will own 48.6 percent and Francisco Partners will have 6.3 percent ownership as a result of a $150 million cash investment in the firm.
Combined, Numonyx will have $3 billion annual revenue, according to Harrison, who predicted at the press conference announcing the firm’s launch that it will be profitable within the first year of operation.
“We took a huge amount of the cost out of the system by merging,” he said at today’s press conference. Before the merger, the two firms had seven wafer-fabrication facilities that were underutilized. After the merger, two fabs operated at a much higher utilization rate. Two separate R&D lines will be merged into one as well.
While flash memory remains under intense pressure, combining the two companies and streamlining their expenses will go a long way toward reducing bottom-line costs and making them profitable, one analyst said.
“A lot of the costs for a semiconductor manufacturer is capital depreciation. When they were part of Intel, they had to share memory fabrication with CPU fabrication, which took the focus off making money with memory,” said Jim Handy, director and chief analyst for Objective Analysis.
With Numonyx’s fabs making only memory, there’s no downtime, and hence, lower costs. But Handy is skeptical of the profitability in one year because of the state of the market. “When NAND has the option of matching price with cost or being profitable, it chooses to match cost,” he said. “They will get their costs down but I don’t know if they can be profitable in the first year with all that price pressure.”