Analysis: Intel may exit Flash business

Chicago (IL) – Intel was the first company to heavily invest into flash production and it may become one of the first big names to leave this market behind. In-Stat believes that Intel may be dropping its NAND flash business simply because it is too difficult to make a profit in this market.

Over the past years, Intel has changed its focus from NOR flash, which it began producing back in 1988, to the more popular NAND type, especially to be cashing in on the iPod craze and support its own flash needs, such as memory that is integrated in motherboard and the firm’s solid state disk drives. Now it appears that at least one analyst is questioning whether it makes sense for Intel to stay in the flash market or just dump this business.

“Although Intel has changed its memory strategy to focus on NAND, In-Stat believes that Intel will likely exit the discrete Flash market within a few years because of difficultly making a positive ROI,” In-Stat analyst Jim McGregor writes in his latest “In-Depth Analysis” report dated December 2007. In fact, if you have followed this market, Intel never has made a profit from flash in recent years. While Intel does not break out the financial performance of its flash memory group in detail anymore, the business is part of “all other”, which recorded an operating loss of more than $2.4 billion in 2007.

In 2006, when the recently sold-off NOR business (to STMicroelectronics) was still active, Intel’s flash memory group lost $555 million. In 2005, the group lost $154 million.

iSuppli ranked Intel as the world’s fifth largest NAND flash supplier, with sales of $132 million and a market share of 3.2% in Q3 of last year. Samsung leads the field with $1.68 billion in sales (40.2% market share), followed by Toshiba ($1.13 billion, 27.2%), Hynix ($806 million, 19.3%) and Micron ($285 million, 6.8%).

Despite the fact that Intel keeps investing into its IM flash joint venture with Micron in an effort to match the production volume of heavyweights such as Samsung and Toshiba, McGregor is somewhat pessimistic about Intel’s long-term opportunity : “In-Stat believes the memory market is critical to Intel’s long-term strategy because of integration, but Intel will not survive in the competitive market for discrete memory components, “ he writes.

Interestingly, while he also notes that this strategy will make Samsung Intel’s most important competitor - a fact that Intel openly discussed last year – he highlights that an advance into markets such as flash will “create some conflicts with existing relationships.” He points to Intel’s partnership with Samsung to define a new generation of DRAM technology and to Samsung being Intel’s customer for microprocessors in PCs, and, “possibly, future consumer electronics”.

“As it stands, Intel continues to lose money in Flash and In-Stat does not believe it is in Intel’s best interest to remain in the discrete memory business, even through the joint venture, but because of contractual obligations, it will likely be several years before Intel finally exits the market for good,” McGregor writes.