Spansion pulled ahead of Intel into a leading position in NOR in 1Q06, a position that it will have to yield to the new firm. Spansion plans to return to profitability via its migration to 45nm and its new SP1 300mm fab which has already started processing wafers and is expected to ship revenue units in the second half of this year. A 300mm fab usually gives about a 30% cost reduction over 200mm. So although Spansion may be losing its positions as both the first-ranked NOR manufacturer and the largest pure-play flash maker, the company is quite likely to be the first NOR maker to return to profitability. This will make it easier for Spansion to invest early and perhaps pull ahead of the new company. This will be an interesting race to watch.

Samsung has set a goal of becoming number one in NOR revenues by 2009 or 2010. Had ST and Intel remained separate entities this would have been easier – both companies were in the $1.5-2.0B range in sales last year, and Spansion had $2.6B in NOR revenues. With the new company already at a revenue level of $3.6B, (most of which was NOR), Samsung will need to grow revenues by another $1B to reach its first-place goal.

Hynix is in an enviable position, moving from a single flash partnership with ST to now having joint ventures with ST, Intel, and SanDisk, all in the space of a few months. Hynix will be managing the Wuxi China fabs and other manufacturing plants in a relationship that should give it very large volumes that will help the company take advantage of economies of scale.

Intel and ST will be able to distance themselves from the difficulties posed by their NOR businesses in the past, yet they can profit from the larger scale of the operation and its narrowed focus. Once the new company becomes profitable these two will have the option of making a capital gain on sales of its stock.

OEMs will now have no second source for the products that Intel and ST introduced 2 years ago, under their agreement to second-source each others’ NOR chips. This was a strategic initiative that will be a casualty of the deal. Other companies may use this to try and convert Intel/ST designs to their own products. The new company believes that their synergies in providing a complete solution will outweigh any disadvantages OEMs see in the lack of an alternate source.