San Francisco: In a move to shed an unprofitable business as its turnaround gains traction, Intel Corp. announced on 22 May that it would join with STMicroelectronics, a Swiss semiconductor maker, to form a new company to sell flash memory chips.
Flash memory is used in cell phones, digital music players and digital cameras and is considered one of the most erratic segments of the semiconductor market.
Intel will sell only the part of its flash business known as NOR, used in cell phones, and will receive a stake of about 45% in the new company and $432 million in cash. STMicroelectronics, which will sell both its NOR and NAND flash memory businesses, will receive a stake of about 49%, along with a payment of $468 million.
The new company, still to be named, will also receive a $150 million investment from Francisco Partners, a private equity firm based in Menlo Park, Calif., which will hold a stake of about 6%. The companies also said that they had arranged for $1.3 billion in loans to help finance the venture.
The announcement came as little surprise to analysts, who had long expected Intel to spin off the unprofitable business to focus on its core business of supplying the processors for personal computers. Last year, Intel's flash memory business lost $500 million on sales of $2 billion.
In December, Intel sold its cellular chip business to the Marvell Technology Group, making Intel's presence in the NOR memory business less strategic to the company, analysts said. Intel, based in Santa Clara, Calif., will continue to sell NAND flash memory, the faster-growing of the two segments, through a joint venture with Micron Technology.
Investors cheered the move, not just for Intel, but because further consolidation of the flash memory industry could lead to more stable pricing, according to Christopher Caso, an analyst with the Friedman, Billings, Ramsey Group. Shares of Intel rose 36 cents, to $22.99, while shares of STMicroelectronics, which is traded on the New York Stock Exchange, rose 38 cents, to $20.26.
The report also bolstered shares of Spansion, the flash memory company spun off by Advanced Micro Devices about 18 months ago. Spansion shares jumped $1.01, or nearly 10%, to close at $11.45.
The combined company, which will have its headquarters in Geneva, will have $3.6 billion in annual revenue and 8,000 employees.
Brian L. Harrison, vice president and general manager of Intel's flash memory group, will become chief executive of the new company. Executives told analysts that they had no immediate plans to take the company public.
By joining forces, Intel and STMicroelectronics will gain the scale to make them more competitive, executives of the companies said. "Together the new company we are creating will achieve the level of scale that is needed to succeed in the flash market," said Carlo Bozotti, president and chief executive of STMicroelectronics, who will be chairman of the new company.
Intel executives said that as a result of the deal, which is expected to close in the second half of the year, the company expected fourth-quarter revenue to decline slightly but remain within the company's forecast.