The Wolf is at the Door

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By stkhawk
June 10, 2003

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In my opinion, the Intel/Elpida deal is really the result of Elpida hiring their new president, Yukio Sakamoto. This guy came from TI and has demonstrated that he knows how to grow a business and make a profit. As stated in the article below, his plan is very straightforward.

"Sakamoto's targets are clear: first, capacity expansion; second, turning a profit; third, taking Elpida public.... Through rebuilding, Sakamoto intends to make Elpida one of the world's top three DRAM manufacturers with a market share of at least 15 percent to 20 percent. At present, the company ranks fifth with less than a 10 percent share."
Yukio Sakamoto understands the fundamental rule of business. Build what your customers want (hopefully at a profit). If you are in the memory business, how wrong can you go building what Intel wants to buy? From a strategic standpoint, the most important part of the Intel deal for Sakamoto is getting an inside track on Intel's memory roadmaps, not to mention Intel is a big customer who is willing to buy product if Elpida delivers. Building additional Wafer Fab capacity only makes sense for Sakamoto if he can sell the increased production. Having Intel as a strategic partner is a huge step in the right direction.

Yukio also understands that you don't invest capital on new designs unless a major customer is requesting production. This is where Rambus comes in. It is very unlikely that Yukio would license Yellowstone unless there is at least one major customer expressing strong interest. You can also bet that Yukio would not continue to invest in design shrinks for RDRAM if they did not have assurances from at least one major customer that RDRAM is needed in the future.
"We tend to look at these types of investments as strategic," Intel Chief Operating Officer Paul Otellini told a news conference. "We'll only make them, not necessarily to make money, but to ensure there is adequate supply and technology available in terms of memory to be able to meet our needs for platforms going forward."
It is interesting to note that the Intel/Elpida deal is structured a lot like the former Intel/Micron deal, in that it involves money for stock. One significant difference is that Elpida is not a public company yet but Yukio plans to take it public after getting profitable. If Elpida is successful, this could become a very significant windfall for Intel.

What amazes me about Micron's backstabbing of Intel on RDRAM production (not making what the customer wanted) is that Intel would have probably bought a boat load of RDRAM from Micron. How much DDR has Intel bought from Micron? If Micron had delivered on RDRAM production, Intel would have had an added incentive to buy RDRAM from Micron. Intel owned stock in Micron. In effect, the more RDRAM that Intel bought from Micron, the more valuable Intel's investment in Micron would have probably been. Hell, Appleton could have probably bought another couple jets by now.

My guess is that Yukio is very thankful he has the opportunity to partner with Intel, with a deal similar to what Micron had for RDRAM. However, you can bet that Yukio will not fail to deliver whatever product Intel wants. If Micron had delivered on RDRAM like Intel wanted, it is my guess that Micron would not be desperately trying to hold onto the #2 spot in the DRAM market today. Appleton had better wise up quick, because the wolf is at the door.

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