Intel puts cash into faster Micron chips
By Therese Poletti
SAN FRANCISCO (Reuters) - Intel Corp. (INTC - news) said Friday it will invest $500 million in top U.S. computer memory chip maker Micron Technology
Inc. (MU - news), a move to ensure the development of faster memory chips in the future.
In exchange for the investment, Intel, the world's largest chip maker, will receive the right to buy common stock amounting to about 6 percent of Micron's common
shares.
Over the past few weeks, rumors have been circulating that Intel was considering buying a minority stake in Micron.
Intel's investment in Micron is part of the Santa Clara, Calif.-based chip giant's strategy to assure the development and supply of a new generation of faster
computer memory devices into the next millennium. The chip giant is also assured an unspecified percentage of Micron's chip output.
The long-running semiconductor industry slump, combined with the economic problems in Asia, has led to sharp declines in capital spending by the Korean and
Japanese memory chip giants, who are not investing in new process technologies.
Intel, which makes about 80 percent of the world's microprocessors-the brain chips of PCs-is a frequent investor in companies it sees as offering breakthrough
technologies for the personal computer industry.
''Our goal in making this equity investment is ensuring an adequate supply of memory components,'' Intel President and Chief Executive Craig Barrett said in a
statement. ''This is a significant strategic investment that supports our microprocessor road map into 2000 and beyond.''
In particular, Intel's investment in Micron is designed to accelerate the adoption of Direct RDRAM, a memory accelerating technology developed by Rambus Inc.
(RMBS - news) (RMBS.O, a Mountain View, Calif.-based chip designer that licenses its technology to Intel and almost every major personal computer maker.
As each generation of Intel's microprocessors have gotten faster, current memory chips cannot keep pace with the higher processing speeds of chips like the
Pentium II at 400 megahertz, and thus are a bottleneck, inhibiting faster PCs.
Intel is seeking to encourage the development of RDRAM because it is considered a lower cost alternative to SRAMs (synchronous RAMs) with equal or better
speed, analysts said.
''Anything that increases the overall speed of a computer is desirable,'' Bill Milton, an analyst at Brown Brothers Harriman, said. ''Intel wants to make sure that it's
not the memory that's the bottleneck. RDRAM is the answer.''
Micron said that Intel's investment will help it accelerate its development and production schedule, allowing it to begin shipments of new memory chips incorporating
the Rambus technology designs in the third quarter of 1999.
Intel's investment in Micron is also another boost to the U.S. memory chip maker's competitive position in an industry dominated by huge Japanese and Korean
electronics manufacturers, now mired in losses from the industry slump.
Despite continued growth in demand for memory chips, a glut of excess supply has caused memory chip makers worldwide to drop prices and lose money in the
past three years, slowing adoption of new technologies such as RDRAM, and fueling one of the longest running industry downturns in memory.
''It's a commodity business and you have to put out the resources to be a player in the future,'' Morgan Stanley Dean Witter analyst Mark Edelstone said. ''There
are concerns that the 75 percent cut backs in capital spending in Korea and 40 percent capital spending cuts in Japan will have an effect on new technology
development.''
The industry downturn has already claimed some victims. In June, Dallas-based Texas Instruments Inc. (TXN - news) announced a deal to sell its money-losing
memory chip business to Micron, for about $800 million, a move widely praised on Wall Street.
And last month, Korean giant Hyundai Electronics Industries said it would merge its semiconductor operations with another Korean conglomerate, LG Semicon, in
an attempt to boost their competitiveness. If the deal goes through, the combined Hyundai/LG Semicon is expected to rank second after Samsung Electronics Co.
Ltd., the world's largest memory chip maker.
Micron is currently the second-largest, but will become No. 3 if the Hyundai/LG Semicon deal goes through.
Intel had been rumored last year to be considering an investment of about $1 billion in Samsung Electronics, but such a deal has not happened. An Intel spokesman
declined to comment on deals that may have happened or may happen in the future.
(Reuters/Wired) |
