Intel, STMicroelectronics Delay Launch Of Flash Memory Company - InformationWeek

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Intel, STMicroelectronics Delay Launch Of Flash Memory Company

The companies said the revised financial terms would give Numonyx a similar level of net cash as the original deal, with lower debt.

Intel, private equity firm Francisco Partners, and STMicroelectronics said Wednesday that they have delayed until next year the closing of a deal to launch a multibillion-dollar semiconductor company.

In addition, the companies said in a joint statement that banks had committed to about half the loan amount as originally planned. In announcing the revised financing, the partners pushed back the closing to March 28 from the second half of this year.

The companies announced in May plans to combine business assets in forming Numonyx, which was expected to generate $3.6 billion in annual revenue from mostly flash memory products for consumers and industry. The assets included research and development, manufacturing, and sales and marketing from Intel and STMicroelectronics.

In the latest development, the companies said in a statement that they have received bank commitments for financing, "following the significant turmoil in the debt capital markets." Much of that turmoil is due to the collapse of the subprime mortgage market, which forced financial institutions to tighten credit.

In loan negotiations, the partners have received "revised financing terms" for a loan of up to $650 million, and $100 million in revolving credit. In the original announcement, the companies said banks had offered a $1.3 billion loan and $250 million in revolving credit.

The terms of the partnership have been tweaked, although the stake each company gets remain the same. STMicroelectronics would receive a 48.6% share and $364 million in cash and long-term, interest-bearing notes for its flash memory business. The cash would range from "low double digits" to $130 million. STMicroelectronics had expected to receive a cash payment of $468 million.

As originally planned, Francisco Partners would invest $150 million for a 6.3% stake. There was no indication that the terms of Intel's investment would change. The chipmaker had agreed to a 45.1% share and $432 million in cash.

The companies said the revised financial terms would give Numonyx a similar level of net cash as the original deal with lower debt. "Intel, Francisco Partners, and ST intend for Numonyx to hit the ground running, with an energized and independent work force, substantial intellectual property, modern and well-equipped manufacturing facilities, and a broad and diverse customer base," the partners said.

The Federal Trade Commission is among the regulators reviewing the proposed venture. In August, the agency sought additional information in its review.

Flash memory, which has no moving parts and is therefore more reliable and durable than hard disk drives, is used in cellular phones, MP3 players, digital cameras, and other high-tech equipment. While still considerably more expensive than hard disk drives, the cost of flash memory hardware has fallen sufficiently to be an alternative in notebooks, particularly those that need to be more rugged for use by mobile workers.

The number of notebooks using some form of flash memory for data storage is expected to soar from a negligible amount today to 60% in two years, according to iSuppli. Besides as a primary storage device, flash memory is used in so-called hybrid notebooks for faster boot times and quicker loading of applications.

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