Intel Deal Hints at NOR Flash Fade

The hope is that the new venture will improve its financials enough to eventually go public, providing the real NOR exit for Intel and STMicro.

Until that time, however, Intel must continue to shoulder the burden of the troubled NOR business. With a 45% stake in the new company, Intel will record 45% of the gain or loss from that business on its income statement.

In a conference call announcing the deal, STMicro CEO Carlo Bozotti said he's hopeful that the new standalone company will turn a profit in its first quarter of existence.

But he provided few details, other than mentioning the synergies of the company's scale, as to how it will get out of the red.

Jim Handy, a flash memory analyst with Objective Analysis, says the best way to improve the cost structure will be to upgrade to chip-manufacturing facilities that use 300-millimeter wafer processing equipment, instead of the current 200-mm gear.

Moving to 300 mm can cut costs by 30% says Handy. But building a 300-mm facility is incredibly expensive, and it's not clear how soon the new company would be able to begin production if it does decide to make the investment.

Because Intel and STMicro's flash businesses are so similar, the near-term path to profitability may be through old-fashioned cost cutting. That could include shutting down some of the duplicate existing chip manufacturing facilities, says one investor with a position in both Intel and STMicro.

Shuttering fabs would reduce the industry's overall supply of NOR chips and presumably bolster prices for the chips.

That would benefit more companies than Intel and STMicro.

Spansion, the main competitor of the new joint venture, had the biggest boost in trading Tuesday after the news, with its stock jumping 9.6%, or $1, to $11.44.

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