After months of speculation, Intel Corporation (Nasdaq: INTC) and STMicroelectronics NV (NYSE: STM) have announced the establishment of a jointly-owned company specializing in non-volatile flash memories. The collaboration between the two companies, which "Globes" reported on at length several months back, will also include, as expected, California-based venture capital fund Francisco Partners, which will share in financing the new activity.

Over the last two years, NOR flash memories, which are designed primarily for storing software codes in mobile devices, have suffered from weakness in the markets, due to falling demand and aggressive competition. At the same time, NAND flash memories, which are used for data storage, have become increasingly popular, and are likely to account for most of the demand for flash memories in the coming years. In recent years, Intel has lost hundreds of millions of dollars yearly on its flash memory activity, losses mostly generated by its NOR flash business.

Intel and STM said they would jointly own the new company, with each transferring its flash manufacturing assets and resources to the new business. Intel will transfer its NOR manufacturing resources, including its Fab 18 in Kiryat Gat plus two other production lines, in exchange for a 45% share in the new company plus $432 million. STM will transfer both its NAND and NOR flash manufacturing activity in exchange for its 49% stake plus $470 million. Francisco Partners will invest $150 million for a 6.3% share. Intel and STM have also arranged a $1.3 billion credit line for the new company and an interim loan of $250 million.

The key issue, as far as the local economy is concerned, is the future of Fab 18 following its transfer to the new company. Intel will transfer three product lines, of which the key one is located at the Kiryat Gat fab. The question now is what will happen to the employees. For now, Intel has acknowledged, that it does not yet have any specific plans regarding the number of people that are to be retained at the fab, whether the rest will be transferred elsewhere and how these changes will be put into effect. At Tuesday's conference call, Intel acknowledged that more than 4,000 people were employed in its NOR manufacturing business, and that some restructuring was likely.

Published by Globes [online], Israel business news - www.globes.co.il - on May 24, 2007

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