Intel Corp, with a research and factory budget of as much as US$8.1 billion this year, will invest US$450 million to make sure unprofitable Micron Technology Inc makes memory chips that speed the performance of Intel products.
As Intel boosts the speed of its best-selling Pentium personal-computer processors, they increasingly require the fastest memory chips to raise performance.
Billions of dollars must be spent on memory plants to buy the latest tools to etch wires thinner than a human hair. Micron, with losses the past 11 quarters, doesn't have the cash to do it alone, analysts said.
"Micron needs the dough," said August Richard, a First Albany Corp analyst. Micron is the world's second-biggest memory-chipmaker, behind Samsung Electronics Co.
At the center of the memory race is a technology known as DDR2, the successor to today's "double data rate" standard. The infusion from Santa Clara, California-based Intel will help Micron develop DDR2 chips using 12-inch silicon wafers, bigger than the 8-inch ones in plants today.
"Intel's ambition here is to provide a quick ramp to DDR2 memory and to lower prices at its time of introduction," said Pacific American Securities analyst Mike Cohen. Intel "wants to make sure there isn't a memory bandwidth bottleneck that impedes the performance of Intel's future processors."
Intel also may be concerned that Samsung, the only company making a profit from making and selling the most common type of memory, may gain enough market share to raise prices for chips that sell for about US$4.50 today, up from US$2.86 in February.
"Intel has a vested interest in all components going into PCs being cheap apart from microprocessors," said Del Ricks, head of technology research at Dongwon Securities in Seoul. "Samsung's market share has gone from 15 to 18 percent to about 28 to 30 percent."
PC makers try to keep the cost of memory at below 10 percent of a machine's cost. If it rises above that point, makers may cut back on other components or raise prices, hurting sales, Ricks said.
Intel, which says it invented the dynamic random access memory that was the predecessor to today's products, stopped building DRAM in 1987 as Asian companies undercut Intel on price.
Micron, the only major memory maker left in the US, has lagged some rivals in rolling out the latest, most-expensive manufacturing systems.
"The Intel investment shores up Micron's balance sheet and facilitates manufacturing advance-ments," said Rick Whittington, an analyst at American Technology Research.
Micron's cash from operations, or the amount of cash it generates annually from selling chips, declined the past three fiscal years, from US$2 billion in 2000 to US$284.2 million in the year ended Aug. 28.
At the end of last month, Micron had US$921.8 million in cash and US$997.1 million in long-term debt.
Intel also will share details of future product designs to ensure they're compatible with Micron's memory, Intel spokesman Chuck Mulloy said.
Intel, which invested US$500 million in Micron in 1998, has invested in other memory makers including Infineon Technologies AG and Samsung, Mulloy said.
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