Intel, STMicro partner on flash memory

Intel and STMicroelectronics on Tuesday followed other chipmakers in offloading loss-making memory businesses, creating a separate $3bn company with the help of private equity.

Intel, the world’s biggest chipmaker, will have a 45.1 per cent stake in the yet-to-be-named company, STMicro will own 48.6 per cent and Francisco Partners, a Silicon Valley private equity firm, will pay $150m for a 6.3 per cent stake in a venture with a $3bn enterprise value.

The company will comprise the flash memory units of Intel and STMicro.

Intel made its division a standalone unit under Brian Harrison, general manager, last year, in what was seen as a preparation for a sale or spin-off.

STMicro did the same for its weakest unit in the first quarter. Mr Harrison will be chief executive of the new company.

The bulk of revenues in Intel’s business comes from NOR Flash, used as memory in mobile phones. It has recently lost out to rival standard NAND Flash. The NOR market has also suffered from price-cutting.

Intel’s first-quarter NOR sales fell 20 per cent on the previous quarter to $427m, according to iSuppli research firm. STMicro’s sales were down $40m on the fourth quarter at $277m.

Spansion was the leading NOR company with $628m in first-quarter revenues, but may now be overtaken on revenues by the new company when it is established in the second half.

Spansion was spun off in December 2005 by Intel rival Advanced Micro Devices. A joint venture with Fujitsu, Spansion had become a drag on AMD’s core microprocessor business.

German chipmaker Infineon also spun out its memory business, Qimonda, last May.

Intel and STMicro will contribute 4,000 employees each to the new venture. Intel has more than 5,000 workers in its existing unit and STMicro had 4,300, implying job cuts will take place.

“Our goal has been to become and remain profitable in flash memory. While we have greatly improved our cost structure and performance in this business, we have not yet reached that goal,” said Arvind Sodhani, president of Intel’s venture capital arm.

Analysts have said they expect the spin-off will enhance both parents’ margins, and potentially make STMicro more attractive to private equity bidders.

STMicro executives said they expected its stake in the new company to become accretive to earnings during 2008.

They declined to comment on the possibility of new private equity interest.