Intel to supply chips for iPod

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Intel on Monday broadened its relationship with Apple Computer, announcing a deal to supply flash memory chips for its iPod portable music players in addition to the processors it will already provide to power Apple’s computers.

Intel also unveiled a joint venture with Micron Technology, a memory chip maker, to manufacture “Nand” flash memory and challenge South Korea’s Samsung in a technology becoming increasingly popular in consumer electronics devices.

Intel has focused on “Nor” flash, popular for mobile phones, but Apple signalled a significant shift to Nand, which is faster in handling music and images, when it launched its Nano iPod in September.

“When the largest MP3 player maker says it’s replacing a hard-drive based model with a flash-based one, you can look to the future and see flash being used in more and more ways in small form-factor devices,” said Gordon Haff, analyst at Illuminata, a research firm.

Apple secured a special deal with Samsung for flash chips for the Nano that its competitors complained caused a major shortage for them. Mr Haff said Apple was now doing the sensible thing by finding other suppliers.

“When your entire company can be brought down by a shortage of one component, you want to diversify. A Nand memory shortage could be just disastrous,” he said.

Apple said it would pre-pay $1.25bn over the next three months to secure flash memory till 2010. As well as Intel and Micron receiving $250m each, it would tap Samsung, Hynix and Toshiba, it said.

Intel and Micron said they would contribute $1.2bn each initially to their new company, IM Flash Technologies, with an additional $1.4bn each expected to be added over the next three years. Micron would own 51 per cent and Intel 49 per cent of the company, with production taking place at three existing facilities.

“The creation of this new company … enables us to rapidly enter a fast-growing portion of the flash market segment,” said Paul Otellini, Intel chief executive.

Worldwide Nand flash revenues rose 30 per cent from the second quarter to the third – from $2.28bn to $2.97bn, according to iSuppli, a research firm.

“This joint venture will be the first company to focus only on Nand flash,” said Nam Hyung Kim, iSuppli analyst, adding it was a “definite threat to Samsung, Toshiba and Hynix”.

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