Intel and Micron are forming a new company to manufacture NAND flash memory chips, the two companies confirmed last night.

By pooling their resources, Intel and Micron hope to be able to compete in the vibrant and profitable NAND business and they already have their first major customer, Apple. Flash memory is used in a wide range of consumer electronics devices including digital cameras and iPods.

Apple's half billion subsidy

The new company will be called IM Flash Technologies. Intel and Micron will each contribute around $1.2 billion to the new joint venture, with each likely to invest an additional $1.4 billion over the next three years. They hope to complete the formation of the new firm by the end of the year.

The two companies also confirmed that they have each entered into separate long-term agreements to provide Apple with a "significant portion" of IM Flash's NAND flash memory. Apple is to prepay $250 million each to Intel and Micron.

IM Flash will be 51 per cent owned by Micron and 49 per cent owned by Intel. Initial production will take place in manufacturing operations in Boise, Idaho; Manassas, Virginia; and Lehi, Utah. The first products from IM Flash are likely to appear in early 2006.

The new company will be led by Dave Baglee, previously manager of Intel's Fab 11 in New Mexico and Rod Morgan, formerly manager of Micron's fabrication plant in Manassas.

Flash market climbs skyward

In a recent report from market researcher iSuppli, Samsung had a 50.2 per cent share of the flash memory market at the end of the third quarter of 2005. Although Micron was ranked in fifth position with only 3.4 per cent of the market, its revenue from flash memory chips increased four-fold over the second quarter, according to iSuppli.

Apple signed a deal with Samsung earlier this year to purchase around 40 per cent of all the flash memory produced by Samsung over the rest of this year.

Apple's future flash plans

All by itself, Apple could account for about 25 per cent of the global market for flash memory next year, according to iSuppli. This situation has constrained the supply of NAND memory for other music player vendors, such as Creative Labs, whose president warned last month that the company's second-half results could be affected by the shortage.

Intel's investment in IM Flash Technologies will allow the company to develop expertise in flash memory. Currently Intel only makes NOR flash memory, which has been the traditional flash memory of choice for mobile phones and personal digital assistants.

Shares of Samsung Electronics, Toshiba and other chip makers fell after the Intel/Micron deal was revealed on concerns of oversupply.