Intel, STMicro to Form New Company for Flash Memory (Update3)

By Ian King and Chiara Remondini

May 22 (Bloomberg) -- Intel Corp. and STMicroelectronics NV plan to combine their unprofitable flash-memory businesses into a new company, creating the world's largest maker of chips that store software in mobile phones.

The agreement, which includes an investment by Menlo Park, California-based buyout fund Francisco Partners LP, allows the companies to exit a business that has been hurt by competition. Price cuts on memory chips led both companies' units to report a drop in revenue last quarter.

The combination will create a company with $3.6 billion in annual sales, bigger than current market leader Spansion Inc. By merging operations, STMicro and Intel can pare expenses and create products that unite different types of semiconductors, Intel Vice President Brian Harrison said on a conference call today.

``The outlook for flash memory remains difficult, with low margins and excess capacity, but at least the companies will benefit from the increased scale of the new venture,'' said Emanuele Vizzini, who oversees $1.2 billion at Investitori Sgr in Milan, including shares of Geneva-based STMicro.

Shares of Santa Clara, California-based Intel gained 12 cents to $22.75 at 11:55 a.m. New York time in Nasdaq Stock Market trading. STMicro shares rose 14 cents to 15.01 euros in Milan.

`Immediate Benefit'

STMicro will hold a 48.6 percent stake and receive a $468 million payment from the new company, and Intel will have 45.1 percent and get $432 million, the companies said in a statement today. Francisco Partners will invest $150 million in the company and own 6.3 percent.

``We like this a lot,'' said John Lau, an analyst at Jefferies & Co. in New York. He has a ``buy'' rating on Intel's stock. ``This will immediately benefit their gross margin.''

Intel said in a separate regulatory filing today that it can no longer forecast asset impairments and restructuring charges in the second quarter. The second-quarter and full-year outlook for the company remain the same, Intel said.

Stacy Smith, Intel's assistant chief financial officer, said on the conference call today that the transaction will improve Intel's profit margins. He declined to say by how much. The company has forecast gross margin of about 51 percent for 2007.

New Leaders

Intel's Harrison will become chief executive officer of the new company, to be based in Switzerland. Mario Licciardello, currently vice president of STMicro's flash-memory unit, will be chief operating officer.

STMicro and Intel said they arranged for the combined company to receive a $1.3 billion loan to cover the payments for their assets and to be used toward working capital.

``The company we are creating will achieve the level of scale needed to achieve success,'' STMicroelectronics CEO Carlo Bozotti said on the call.

Both STMicro and Intel are giving up their so-called Nor flash businesses that store operating systems for home electronics. STMicro is also exiting its Nand flash business that retains data in consumer electronics, including some versions of Apple Inc.'s iPod.

Bozotti said this month the company needs a partner for its flash business to make it large enough to be competitive. The unit had an operating loss of $17 million in the first quarter.

``This is an excellent move for STMicroelectronics,'' said Raffaella Sommariva, a fund manager at Azimut Sgr in Milan, which oversees the equivalent of $14.9 billion. ``They're exiting a business which is very competitive and requires huge capex investments.''

Intel separated part of its flash unit from the rest of its business last year, leading analysts to speculate the company was preparing it for a sale. The company's total memory division, including a unit that isn't part of the new company, had a loss of $283 million in the first quarter, wider than a year earlier.

Spansion Gains

Shares of Sunnyvale, California-based Spansion rose as much as 14 percent, and gained 91 cents at $11.35 at 11:08 New York time. Last week, Spansion Chief Executive Bertrand Cambou said that a combination of his two largest rivals would create more business for his company because some electronics makers would want to avoid too much reliance on one supplier.

The combined businesses of STMicro and Intel will also challenge Samsung Electronics Co., the world's second-largest chipmaker behind Intel.

Samsung was the only one of the top four manufacturers to post an increase in sales in the first quarter, according to figures from El Segundo, California-based researcher iSuppli Corp. Samsung boosted sales to $250 million, a gain of 21 percent from three months earlier. Spansion's sales fell 8.6 percent to $628 million, Intel's dropped 20 percent to $427 million and STMicro's fell 13 percent to $277 million.

The new company will continue a partnership STMicro has with South Korea's Hynix Semiconductor Inc. for Nand flash memory. The Intel-STMicro combination won't compete with another Intel joint venture for Nand with Micron Technology Inc., said Intel's Harrison. The two will focus on different parts of the market.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net ; Chiara Remondini in Milan at cremondini@bloomberg.net

Last Updated: May 22, 2007 11:56 EDTIntel, STMicro to Form New Company for Flash Memory (Update3)

By Ian King and Chiara Remondini

May 22 (Bloomberg) -- Intel Corp. and STMicroelectronics NV plan to combine their unprofitable flash-memory businesses into a new company, creating the world's largest maker of chips that store software in mobile phones.

The agreement, which includes an investment by Menlo Park, California-based buyout fund Francisco Partners LP, allows the companies to exit a business that has been hurt by competition. Price cuts on memory chips led both companies' units to report a drop in revenue last quarter.

The combination will create a company with $3.6 billion in annual sales, bigger than current market leader Spansion Inc. By merging operations, STMicro and Intel can pare expenses and create products that unite different types of semiconductors, Intel Vice President Brian Harrison said on a conference call today.

``The outlook for flash memory remains difficult, with low margins and excess capacity, but at least the companies will benefit from the increased scale of the new venture,'' said Emanuele Vizzini, who oversees $1.2 billion at Investitori Sgr in Milan, including shares of Geneva-based STMicro.

Shares of Santa Clara, California-based Intel gained 12 cents to $22.75 at 11:55 a.m. New York time in Nasdaq Stock Market trading. STMicro shares rose 14 cents to 15.01 euros in Milan.

`Immediate Benefit'

STMicro will hold a 48.6 percent stake and receive a $468 million payment from the new company, and Intel will have 45.1 percent and get $432 million, the companies said in a statement today. Francisco Partners will invest $150 million in the company and own 6.3 percent.

``We like this a lot,'' said John Lau, an analyst at Jefferies & Co. in New York. He has a ``buy'' rating on Intel's stock. ``This will immediately benefit their gross margin.''

Intel said in a separate regulatory filing today that it can no longer forecast asset impairments and restructuring charges in the second quarter. The second-quarter and full-year outlook for the company remain the same, Intel said.

Stacy Smith, Intel's assistant chief financial officer, said on the conference call today that the transaction will improve Intel's profit margins. He declined to say by how much. The company has forecast gross margin of about 51 percent for 2007.

New Leaders

Intel's Harrison will become chief executive officer of the new company, to be based in Switzerland. Mario Licciardello, currently vice president of STMicro's flash-memory unit, will be chief operating officer.

STMicro and Intel said they arranged for the combined company to receive a $1.3 billion loan to cover the payments for their assets and to be used toward working capital.

``The company we are creating will achieve the level of scale needed to achieve success,'' STMicroelectronics CEO Carlo Bozotti said on the call.

Both STMicro and Intel are giving up their so-called Nor flash businesses that store operating systems for home electronics. STMicro is also exiting its Nand flash business that retains data in consumer electronics, including some versions of Apple Inc.'s iPod.

Bozotti said this month the company needs a partner for its flash business to make it large enough to be competitive. The unit had an operating loss of $17 million in the first quarter.

``This is an excellent move for STMicroelectronics,'' said Raffaella Sommariva, a fund manager at Azimut Sgr in Milan, which oversees the equivalent of $14.9 billion. ``They're exiting a business which is very competitive and requires huge capex investments.''

Intel separated part of its flash unit from the rest of its business last year, leading analysts to speculate the company was preparing it for a sale. The company's total memory division, including a unit that isn't part of the new company, had a loss of $283 million in the first quarter, wider than a year earlier.

Spansion Gains

Shares of Sunnyvale, California-based Spansion rose as much as 14 percent, and gained 91 cents at $11.35 at 11:08 New York time. Last week, Spansion Chief Executive Bertrand Cambou said that a combination of his two largest rivals would create more business for his company because some electronics makers would want to avoid too much reliance on one supplier.

The combined businesses of STMicro and Intel will also challenge Samsung Electronics Co., the world's second-largest chipmaker behind Intel.

Samsung was the only one of the top four manufacturers to post an increase in sales in the first quarter, according to figures from El Segundo, California-based researcher iSuppli Corp. Samsung boosted sales to $250 million, a gain of 21 percent from three months earlier. Spansion's sales fell 8.6 percent to $628 million, Intel's dropped 20 percent to $427 million and STMicro's fell 13 percent to $277 million.

The new company will continue a partnership STMicro has with South Korea's Hynix Semiconductor Inc. for Nand flash memory. The Intel-STMicro combination won't compete with another Intel joint venture for Nand with Micron Technology Inc., said Intel's Harrison. The two will focus on different parts of the market.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net ; Chiara Remondini in Milan at cremondini@bloomberg.net

Last Updated: May 22, 2007 11:56 EDTIntel, STMicro to Form New Company for Flash Memory (Update3)

By Ian King and Chiara Remondini

May 22 (Bloomberg) -- Intel Corp. and STMicroelectronics NV plan to combine their unprofitable flash-memory businesses into a new company, creating the world's largest maker of chips that store software in mobile phones.

The agreement, which includes an investment by Menlo Park, California-based buyout fund Francisco Partners LP, allows the companies to exit a business that has been hurt by competition. Price cuts on memory chips led both companies' units to report a drop in revenue last quarter.

The combination will create a company with $3.6 billion in annual sales, bigger than current market leader Spansion Inc. By merging operations, STMicro and Intel can pare expenses and create products that unite different types of semiconductors, Intel Vice President Brian Harrison said on a conference call today.

``The outlook for flash memory remains difficult, with low margins and excess capacity, but at least the companies will benefit from the increased scale of the new venture,'' said Emanuele Vizzini, who oversees $1.2 billion at Investitori Sgr in Milan, including shares of Geneva-based STMicro.

Shares of Santa Clara, California-based Intel gained 12 cents to $22.75 at 11:55 a.m. New York time in Nasdaq Stock Market trading. STMicro shares rose 14 cents to 15.01 euros in Milan.

`Immediate Benefit'

STMicro will hold a 48.6 percent stake and receive a $468 million payment from the new company, and Intel will have 45.1 percent and get $432 million, the companies said in a statement today. Francisco Partners will invest $150 million in the company and own 6.3 percent.

``We like this a lot,'' said John Lau, an analyst at Jefferies & Co. in New York. He has a ``buy'' rating on Intel's stock. ``This will immediately benefit their gross margin.''

Intel said in a separate regulatory filing today that it can no longer forecast asset impairments and restructuring charges in the second quarter. The second-quarter and full-year outlook for the company remain the same, Intel said.

Stacy Smith, Intel's assistant chief financial officer, said on the conference call today that the transaction will improve Intel's profit margins. He declined to say by how much. The company has forecast gross margin of about 51 percent for 2007.

New Leaders

Intel's Harrison will become chief executive officer of the new company, to be based in Switzerland. Mario Licciardello, currently vice president of STMicro's flash-memory unit, will be chief operating officer.

STMicro and Intel said they arranged for the combined company to receive a $1.3 billion loan to cover the payments for their assets and to be used toward working capital.

``The company we are creating will achieve the level of scale needed to achieve success,'' STMicroelectronics CEO Carlo Bozotti said on the call.

Both STMicro and Intel are giving up their so-called Nor flash businesses that store operating systems for home electronics. STMicro is also exiting its Nand flash business that retains data in consumer electronics, including some versions of Apple Inc.'s iPod.

Bozotti said this month the company needs a partner for its flash business to make it large enough to be competitive. The unit had an operating loss of $17 million in the first quarter.

``This is an excellent move for STMicroelectronics,'' said Raffaella Sommariva, a fund manager at Azimut Sgr in Milan, which oversees the equivalent of $14.9 billion. ``They're exiting a business which is very competitive and requires huge capex investments.''

Intel separated part of its flash unit from the rest of its business last year, leading analysts to speculate the company was preparing it for a sale. The company's total memory division, including a unit that isn't part of the new company, had a loss of $283 million in the first quarter, wider than a year earlier.

Spansion Gains

Shares of Sunnyvale, California-based Spansion rose as much as 14 percent, and gained 91 cents at $11.35 at 11:08 New York time. Last week, Spansion Chief Executive Bertrand Cambou said that a combination of his two largest rivals would create more business for his company because some electronics makers would want to avoid too much reliance on one supplier.

The combined businesses of STMicro and Intel will also challenge Samsung Electronics Co., the world's second-largest chipmaker behind Intel.

Samsung was the only one of the top four manufacturers to post an increase in sales in the first quarter, according to figures from El Segundo, California-based researcher iSuppli Corp. Samsung boosted sales to $250 million, a gain of 21 percent from three months earlier. Spansion's sales fell 8.6 percent to $628 million, Intel's dropped 20 percent to $427 million and STMicro's fell 13 percent to $277 million.

The new company will continue a partnership STMicro has with South Korea's Hynix Semiconductor Inc. for Nand flash memory. The Intel-STMicro combination won't compete with another Intel joint venture for Nand with Micron Technology Inc., said Intel's Harrison. The two will focus on different parts of the market.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net ; Chiara Remondini in Milan at cremondini@bloomberg.net

Last Updated: May 22, 2007 11:56 EDTIntel, STMicro to Form New Company for Flash Memory (Update3)

By Ian King and Chiara Remondini

May 22 (Bloomberg) -- Intel Corp. and STMicroelectronics NV plan to combine their unprofitable flash-memory businesses into a new company, creating the world's largest maker of chips that store software in mobile phones.

The agreement, which includes an investment by Menlo Park, California-based buyout fund Francisco Partners LP, allows the companies to exit a business that has been hurt by competition. Price cuts on memory chips led both companies' units to report a drop in revenue last quarter.

The combination will create a company with $3.6 billion in annual sales, bigger than current market leader Spansion Inc. By merging operations, STMicro and Intel can pare expenses and create products that unite different types of semiconductors, Intel Vice President Brian Harrison said on a conference call today.

``The outlook for flash memory remains difficult, with low margins and excess capacity, but at least the companies will benefit from the increased scale of the new venture,'' said Emanuele Vizzini, who oversees $1.2 billion at Investitori Sgr in Milan, including shares of Geneva-based STMicro.

Shares of Santa Clara, California-based Intel gained 12 cents to $22.75 at 11:55 a.m. New York time in Nasdaq Stock Market trading. STMicro shares rose 14 cents to 15.01 euros in Milan.

`Immediate Benefit'

STMicro will hold a 48.6 percent stake and receive a $468 million payment from the new company, and Intel will have 45.1 percent and get $432 million, the companies said in a statement today. Francisco Partners will invest $150 million in the company and own 6.3 percent.

``We like this a lot,'' said John Lau, an analyst at Jefferies & Co. in New York. He has a ``buy'' rating on Intel's stock. ``This will immediately benefit their gross margin.''

Intel said in a separate regulatory filing today that it can no longer forecast asset impairments and restructuring charges in the second quarter. The second-quarter and full-year outlook for the company remain the same, Intel said.

Stacy Smith, Intel's assistant chief financial officer, said on the conference call today that the transaction will improve Intel's profit margins. He declined to say by how much. The company has forecast gross margin of about 51 percent for 2007.

New Leaders

Intel's Harrison will become chief executive officer of the new company, to be based in Switzerland. Mario Licciardello, currently vice president of STMicro's flash-memory unit, will be chief operating officer.

STMicro and Intel said they arranged for the combined company to receive a $1.3 billion loan to cover the payments for their assets and to be used toward working capital.

``The company we are creating will achieve the level of scale needed to achieve success,'' STMicroelectronics CEO Carlo Bozotti said on the call.

Both STMicro and Intel are giving up their so-called Nor flash businesses that store operating systems for home electronics. STMicro is also exiting its Nand flash business that retains data in consumer electronics, including some versions of Apple Inc.'s iPod.

Bozotti said this month the company needs a partner for its flash business to make it large enough to be competitive. The unit had an operating loss of $17 million in the first quarter.

``This is an excellent move for STMicroelectronics,'' said Raffaella Sommariva, a fund manager at Azimut Sgr in Milan, which oversees the equivalent of $14.9 billion. ``They're exiting a business which is very competitive and requires huge capex investments.''

Intel separated part of its flash unit from the rest of its business last year, leading analysts to speculate the company was preparing it for a sale. The company's total memory division, including a unit that isn't part of the new company, had a loss of $283 million in the first quarter, wider than a year earlier.

Spansion Gains

Shares of Sunnyvale, California-based Spansion rose as much as 14 percent, and gained 91 cents at $11.35 at 11:08 New York time. Last week, Spansion Chief Executive Bertrand Cambou said that a combination of his two largest rivals would create more business for his company because some electronics makers would want to avoid too much reliance on one supplier.

The combined businesses of STMicro and Intel will also challenge Samsung Electronics Co., the world's second-largest chipmaker behind Intel.

Samsung was the only one of the top four manufacturers to post an increase in sales in the first quarter, according to figures from El Segundo, California-based researcher iSuppli Corp. Samsung boosted sales to $250 million, a gain of 21 percent from three months earlier. Spansion's sales fell 8.6 percent to $628 million, Intel's dropped 20 percent to $427 million and STMicro's fell 13 percent to $277 million.

The new company will continue a partnership STMicro has with South Korea's Hynix Semiconductor Inc. for Nand flash memory. The Intel-STMicro combination won't compete with another Intel joint venture for Nand with Micron Technology Inc., said Intel's Harrison. The two will focus on different parts of the market.

To contact the reporters on this story: Ian King in San Francisco at ianking@bloomberg.net ; Chiara Remondini in Milan at cremondini@bloomberg.net

Last Updated: May 22, 2007 11:56 EDT