LONDON Shifts of ownership are starting to happen that are indicators of a major reshaping of the semiconductor industry's landscape. However, whether it will ultimately result in a reduction in the number of players, as has long been predicted would happen, is not clear because ironically what is still clear is that geographical and strategic interests, in a addition to purely commercial imperatives, are still potent in the industry.
It is also clear that the DRAM market outlook is highly commoditized and bad, while the NAND flash market outlook is for similar commoditization but the hope that the top one, two or three players can make some money over the next decade.
As a consequence Infineon is trying to get out of memory market while a new joint venture, IM Flash, is trying to get in.
IM Flash is a $5 billion joint venture being set up by Intel and Micron to help them service Apple’s runaway success with the iPod music player and gain market share for the companies in the NAND flash business. It will bring pressures to bear elsewhere; in other industry sectors and other locations.
Samsung lost out in an attempt to build a flash partnership with Apple around a $3.8 billion wafer fab, reportedly because of a risk that Samsung might be investigated by the Korean FTC over alleged artificially low pricing of flash memory (see Oct. 16 story).
Was that a commercial decision or were there more strategic reasons for considering an all-U.S. deal? Apple seems to have been persuaded to make a deal not with the market leader in NAND flash memory, Samsung, but with two lesser players in flash memory that have the advantage of being local.
On the other hand the deal seems to make a lot of sense for Intel, and slightly less for Micron, although we await the disclosure of more details.
Intel gets additional access to a key customer remember Apple is taking Intel processors and a share in the flash memory technology developed by Micron. It does have to put up a load of cash, but that is one thing Intel is well able to do.
Micron, it appears, is left holding on to wafer fabs, which despite Intel’s proposed financial help in filling them with equipment to build flash memories, are still costly and capital-intensive, and a mixture of lesser interests such as image sensors and DRAMs. Meanwhile it too has to put up large amounts of cash for the joint venture, which with the DRAM market as its main source of income and hardly any profit, it must find considerably harder to do than Intel.
Micron has retained control of the joint venture but it may be at cost it can ill afford. And note that in IM Flash I comes before M even when M puts up 51 percent of the money.
Nonetheless IM Flash, with Apple as a key customer, will be a player, whether or not a style-backlash against the iPod sets in before the company gets up and running in 2006. And that puts even more pressure on Samsung, Hynix, Spansion and the player that seems to departing from the memory poker table at speed, Infineon Technologies AG.
This could indeed lead to Spansion seeking to cut a deal with Infineon for some proportion of its memory and memory manufacturing assets, as was suggested by Mark Lapedus on Friday (Nov. 18). And if not a deal between Spansion and Infineon, then expect other players to react, but probably along fault-lines of geographic and strategic interest.