In 2006, microprocessor giant Intel (NASDAQ:INTC) and memory specialist Micron (NASDAQ:MU) teamed up to form a joint venture called IM Flash Technologies, or IMFT for short. The joint venture was mainly dedicated to the development of a type of non-volatile memory -- that is, memory that retains its contents even when power is removed -- called NAND flash.
In 2015, both Intel and Micron announced that they'd developed a new memory technology called 3D XPoint. The technology offered a number of advantages over traditional NAND flash, such as faster performance and higher endurance, but the trade off is that the technology is more costly to produce than NAND flash.
The potential uses for 3D XPoint include both high-performance storage as well as a replacement for DRAM in certain data center applications since 3D XPoint is supposed to be cheaper than DRAM (allowing for much greater capacities) and is also non-volatile, while DRAM is volatile.
In January of 2018, the two companies announced that they'd stop co-developing future generations of 3D NAND flash and then in July, they announced that they planned to go their separate ways with respect to 3D XPoint memory technology development and production.
The final part of this ongoing separation of the two companies was announced on Oct. 18 when Micron said that it'd be exercising its call option to purchase Intel's minority stake in IMFT. Let's take a closer look at the details and the implications for both companies.
What does Micron get?
During the conference call that Micron hosted to discuss this deal, Manish Bhatia, executive vice president of Global Operations at the memory maker said that by buying out Intel's stake in IMFT, Micron would gain full ownership of a manufacturing plant in Lehi, Utah that's currently being used to manufacture 3D XPoint memory.
The company will also get IMFT's staff, which he said "will help us accelerate our technology roadmap on 3D XPoint and other emerging memories."
The financial details
Micron CFO David Zinsner went over the key financial details of this deal. He said that the company "can exercise the call option starting January 1, 2019, and the timeline to close the transaction is between six and twelve months after the date Micron exercises the call."
Intel, Zinsner explained, "will choose the exact closing date within that six-to-twelve month window."
The executive said that Micron's planning on paying $1.5 billion for Intel's stake in IMFT as well as "the elimination of IM Flash member debt."
That cash, per Zinsner, will come from the company's balance sheet. Zinsner also highlighted that Micron intends to "continue with our previously announced stock buybacks, which we continue to fund through our balance sheet." (Micron announced a $10 billion share repurchase program earlier this year.)
How about Intel?
Intel has talked a great deal about how important 3D XPoint will be to its growth ambitions both for its non-volatile memory solutions group (NSG) segment, which sells NAND-based and 3D XPoint-based storage drives, as well as to its data center group (DCG), through which the company will sell memory modules based on 3D XPoint technology that are intended to, in some cases, replace traditional DRAM.
In the near-term, it looks like Intel's covered. Bhatia explained that "[following] the close of the transaction, there are certain supply agreements that come in effect and will extend for a period of one year."
He also said that Micron will "continue to have the opportunity to sell 3D XPoint wafers on a foundry basis."
The reality is that Micron and Intel have already announced that they'll be pursuing divergent technological paths for 3D XPoint memory after they wrap up the development of the second-generation version of 3D XPoint, which the companies previously said "is expected to occur in the first half of 2019."
What that means, then, is that Intel will need to build its own manufacturing capacity to build its solely developed third-generation 3D XPoint technology (Intel already has a factory -- known as Fab 68 -- that's currently producing 3D NAND flash). Until it comes time to transition to that technology, though, I'd imagine those "certain supply agreements" will ensure that Intel will be able to build and sell its 3D XPoint-based products without a problem.
I hope we'll get more details from Intel about its long-term 3D XPoint manufacturing strategy during its earnings conference call on Oct. 25.