Flash Moves to Fore

"From an investment standpoint, it's a really easy decision," says Jim Handy, the flash memory analyst at the market research firm Semico Research.

It's a tack that other flash makers have successfully taken in the past, notes Handy. South Korea's Hynix, the third-largest flash maker, converted its factories' unused DRAM capacity to flash production a few years ago and enlisted the help of STMicroelectronics(STM). Within nine months of signing the deal, Hynix was in volume production of flash, says Handy.

According to the details of the deal made public, Intel and Micron will each pony up $1.2 billion in cash, notes and assets to the venture. During the next three years, each company is expected to make an additional contribution of about $1.4 billion.

Micron would own 51% of the company, and Intel will have a 49% stake. The venture will rely on chipmaking facilities in Idaho, Virginia and Utah. Micron, which is based in Boise, Idaho, has four semiconductor fabrication facilities in Idaho. It's unclear who owns the other facilities cited in the announcement.

While funding the venture will be no problem for Intel, which is sitting on more than $11 billion in cash, it could present a bit more of a challenge for Micron. As of September, the company had about $1.3 billion in cash and short-term investments on its balance sheet, prompting some investors to wonder if the company would have to tap the public markets to finance its end of the deal.

And the possibility of a flash glut is casting another shadow over the announcement. Today's rosy predictions about flash memory growth are eerily reminiscent of exuberance over DRAM memory forecasts in the mid-1990s, say some investors. Of course, the DRAM market became oversaturated, prices plunged and many of the big players, such as Samsung and Hynix, converted their excess DRAM capacity into flash capacity.

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