Apple’s iPod reshapes Flash industry – Intel and Micron form joint venture

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Apple's iPod reshapes Flash industry - Intel and Micron form joint venture

Santa Clara (CA) – It’s no secret that Apple has grown its iPod portable audio player into a force that requires a whole industry to rethink and adapt product and business strategies. Even Intel believes the iPod is important enough to enter a Flash segment it has neglected so far. Today the company announced a joint venture with Micron to supply NAND memory devices to Apple.

The company, named IM Flash Technologies, combines manufacturing technology, assets, experience of Intel and Micron to compete for a leading position in the global NAND Flash business. The firms said that they will exclusively produce devices for Micron and Intel consumer electronics, removable storage and handheld communications devices, but also entered a long-term supply agreement with Apple.

According to a statement, Apple will buy a “significant portion” of each of their share of IM Flash Technologies’ NAND flash memory output to secure enough Flash memory for its iPod business. As part of these agreements, Apple will prepay $250 million each to Intel and Micron.

Intel and Micron have agreed to initially contribute approximately $1.2 billion each in cash, notes and assets to IM Flash Technologies. Subject to certain conditions, the parties will each contribute an additional approximately $1.4 billion over the next three years and intend to make additional investments as appropriate to support the growth of the operation. The company will be 51 percent owned by Micron and 49 percent owned by Intel. Production will initially take place in manufacturing facilities located in Boise, Idaho, Manassas, Va. and Lehi, Utah.

Especially interesting about the joint venture is the fact that Intel has not been interested in the NAND Flash business to this date. So far, the company has been focused on the NOR Flash market, where it has been engaged in a fierce price war with AMD’s Spansion division, which eroded margins and make it more difficult to maintain profitability from quarter to quarter. Intel holds roughly 25 percent of today’s global NOR Flash market and was able to achieve positive quarter results, but research firms such as iSuppli believe that the Nor Flash market will take a nosedive this year, and slowly recover in 2006.

NOR was the first type of Flash and was developed from EPROM and EEPROM chip technologies. Equipped with an SRAM interface, NOR Flash has write and delete speeds that would be considered slow by today’s standards, and can handle only a small number of write cycles (about 100,000). It is found in areas where permanently stored data needs to be only infrequently changed. For example, operating systems of digital cameras or mobile phones are stored on NOR Flash units.

In contrast, NAND had little success until the early 2000s, but has become more popular in recent years as it offers about ten times the number of write cycles, and higher speeds in both the save and delete processes. Additionally, NAND capacity can be produced at lower price levels due to a smaller cell size of the memory. NAND is used today especially in Flash memory cards or MP3 players and is expected to replace NOR in certain applications, such as cellphones, in the near future. At this time, global NAND revenue already is more than twice that of NOR with Samsung holding more than 50 percent of the market. According to iSupply, Micron currently is the fifth-largest NAND manufacturer with sales of about $55 million during the third quarter of this year.

Apple has been rumored for some time to be shopping for additional Flash suppliers next to Samsung, who is believed to be dedicating more than 40 percent of its NAND Flash memory output for Apple’s iPod products. The company now acknowledged that it has secured production capacities not only from Intel/Micron, but also from Hynix and Toshiba through 2010. In a statement released on Monday, Apple said that it will prepay $1.25 billion for flash memory components to those firms during the next three months.