New comments -- could reach 100 million RDRAM units next year!
January 25, 1999, Issue: 1144
Section: News
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Intel funds Samsung's transition to Rambus
Mark Hachman and Andrew MacLellan
Silicon Valley- Determined to underwrite the memory-IC industry's transition to Direct Rambus DRAM, Intel Corp. last week made a $100 million investment in Korean chip maker Samsung Electronics Co. Ltd.
The deal-as well as the $500 million Intel invested last October in Micron Technology Inc.- was orchestrated to ensure an ample supply of the high-speed memory to support Intel's upcoming Pentium III processor, which is architecturally linked to Direct RDRAM.
The agreement confirms a February 1998 EBN report that executives from the two companies were gathering at Intel's Santa Clara, Calif., headquarters to discuss a possible cash infusion.
The Samsung investment, which requires approval from both companies' boards of directors, will guarantee that the necessary fabrication, assembly, and test infrastructure is in place to allow Samsung to meet industry demand, Samsung said in a statement.
"Samsung is committed to be the leader in development and production of Direct RDRAM technology to support the needs of Intel and OEM customers," said Y.W. Lee, Samsung's president and chief executive.
According to the terms of the agreement, Intel will acquire convertible bonds exchangeable for common stock representing approximately 1% of Samsung's outstanding common stock. The approval of the Korean government is also required before the deal can be finalized.
By subsidizing Samsung's production plans, Intel is injecting much-needed capital into one of its largest suppliers, and helping to cushion Samsung from a prolonged DRAM pricing slide and a downturn in the Korean economy.
"The investment ensures Samsung will expedite Direct Rambus into production," said Sherry Garber, an analyst with Semico Research Corp., Phoenix.
It also complements Intel's two-part "umbrella strategy," which aims to boost PC performance by re-engineering system components, and to make the necessary corporate investments to spur market growth, said Patrick Gelsinger, vice president and general manager of Intel's desktop-products group.
"For the past five quarters, [the DRAM industry has] gone through some tough times," Gelsinger said. "In talking with people, they've had to go back to their boards to justify [every Rambus capital investment]."
According to Garber, the Intel stake may serve as more than just a financial incentive for Samsung. Citing several DRAM manufacturers, she said there is a prevailing belief that once a production line has been committed to Direct RDRAM, it cannot be cost-effectively reconfigured to allow production of other types of DRAM. Committing to Direct RDRAM can therefore be a risky move, she explained. Samsung could not be reached for comment.
Samsung is known to be an aggressive, high-volume manufacturer. Last November, the company announced it would boost production of 64-Mbit DRAM by 40%; and in October, Samsung said it would double capacity at a new fab in Austin, Texas, to 21,000 8-in. wafer starts per month. Intel took a small equity stake in the Austin fab in 1997 in exchange for a guarantee of supply.
In addition to more solidly aligning Intel with Direct RDRAM supplies, the latest investment deal spells out Samsung's commitment to Rambus memory in black and white. In a separate statement, Samsung forecast run rates of 500,000 72- and 144-Mbit Direct RDRAM chips per month in the first half of 1999, ramping to 5 million chips per month as the market expands in the second half of the year.
And, according to Asian press reports, Hyundai Electronics Industries Co. Ltd. will spend about $170 million to upgrade Direct Rambus production to meet a goal of 4 million 72-Mbit and 1 million 144-Mbit chips per month in the second half of 1999.
Needless to say, the public airing of such production figures was music to the ears of Direct RDRAM architect Rambus Inc., Mountain View, Calif.
"This is an incredibly strong statement to your readers that companies are not only willing to put their money up, but are also willing to put their reputations on the line," said Subodh Toprani, vice president and general manager of Rambus' logic products division. "Between these two companies alone, we might see 100 million RDRAM units next year."
Copyright ® 1999 CMP Media Inc.
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