Intel, STMicro to create new company for flash memory

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Intel Corp. and STMicroelectronics plan to combine their flash-memory businesses into a new independent chip company in Switzerland, creating the world's largest maker of chips focusing on flash memory for consumer and industrial devices like cell phones, digital cameras and MP3 players.

Both companies were facing loss; STMicroelectronics had an operating loss of $17 million in the first quarter while Intelís memory division had a loss of $283 million in the first quarter. They both needed a partner for its flash business to make it large enough to be competitive and benefit from the increased scale of the new venture. Under the terms of the agreement, both companies are giving up their NAND and NOR flash memory assets to the new company.

In exchange for selling its assets, Intel will receive a 45.1 percent stake in the new company and STMicroelectronics will get a 48.6 percent stake. Francisco Partners, meanwhile, is investing $150 million in cash for convertible preferred stock for its 6.3 percent stake in the company.
The new company is expected to receive a $1.3 billion term loan, a $250 million revolving credit line and the $150 million from Francisco Partners, totaling $1.7 billion.

The new company will be run by Intel's Vice President Brian Harrison as chief executive officer and Mario Licciardello, currently vice president of STMicro's flash-memory unit, will be chief operating officer. The deal is expected to close in the second half of 2007.

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