SanDisk, Toshiba to Build Japanese Chip Plant

With competition heating up in the market for hot-selling flash memory chips, SanDisk(SNDK) and Toshiba will invest $2.6 billion to build a new factory.

The two companies announced Friday that they have begun construction of the facility, located in Yokkaichi, Japan, with the first output slated for the fourth quarter of 2007.

The new facility, dubbed Fab 4, will be the fourth flash chip factory jointly owned by the two companies through various joint venture, and it could double the overall production of the pair's most advanced chips.

"Fab 4 is really about capacity expansion for 2008 and beyond," says SanDisk CFO Judy Bruner.

In 2005, Toshiba and SanDisk started operation of another chip fabrication facility in Yokkaichi, Fab 3, which produces chips on advanced 300mm wafers. Over the past year, SanDisk has committed an additional $1 billion in capital spending in order to nearly triple the plant's capacity to 110,000 wafers a month.

Fab 4, which also will produce chips on 300mm wafers, will have an initial capacity of 2,500 wafers a month, with plans to ramp to 67,500 a month within a year. Ultimately, says Bruner, the facility will match Fab 3's 110,000-wafer-a-month output.

Flash memory chips, which retain data even when power is switched off, are an increasingly popular form of storage in electronic devices such as MP3 players, digital cameras and cell phones.

Earlier this week, SanDisk announced a $1.35 billion acquisition of MSystems(FLSH), another flash memory company.

In November, Intel(INTC), the world's No. 1 chipmaker, teamed up with Micron(MU) and formed a joint venture to grab a piece of the fast-growing market for flash chips.

Total sales of NAND flash -- the most popular version of flash memory -- in 2006 are expected to hit $16 billion, compared with $11 billion in 2005, according to market research firm Semico Research.