Computer chip maker Intel has landed a contract to supply Sweden's Telefon AB L.M. Ericsson with US$1.5 billion in flash-memory chips over the next three years, one of the first major deals in its effort to tap into the fast-growing market for cellular phones.
The deal ensures a steady supply of chips for Ericsson at a time when flash-memory use is rising rapidly. Once used primarily in computers, flash memory is becoming an increasingly important component of mobile phones, hand-held organizers, digital cameras and music players that download songs from the Internet.
Demand for flash memory should soar over the next several years as phones bulk up on memory to be able to access the Web.
"If you look at the growth in cell phones, you can see why we want to be a major supplier to this industry," said Benny Ginman, Intel's director of European sales and marketing for its wireless communications and computing group in Munich. "And the driving force is going to be the Internet."
Separately, Intel said it would buy two mothballed chip factories from Rockwell International and convert one of them for production of flash-memory chips, while the other will be used to sort and test chips. It said it would spend a total of US$1.5 billion on the purchase and conversions.
Booming cell-phone market An Ericsson spokesman said the company expects to sign a contract to buy memory chips from Intel but couldn't confirm the value of the deal.
About 275 million mobile phones were sold world-wide in 1999, and the market is growing more than 30 percent a year.
By moving into chips for mobile phones, Intel, the world's largest chip maker, hopes to offset the impact of falling prices and increasing competition in its microprocessor business. Pentium processors generated about 80 percent of Intel's US$29 billion in 1999 sales, Ginman said. The other 20 percent came from flash memories and networking equipment.
Ginman said the company already supplies flash-memory chips to major mobile-phone manufacturers such as Nokia Corp. and Motorola Inc. but wants to offer a full line of components for Internet-enabled phones. Last year, it bought DSP Communications Inc., a maker of digital signal processors that are widely used in phones and music devices. It also makes a line of StrongARM processors that use very little power. It hasn't yet landed a major cell-phone customer for them, although Nokia plans to use them in boxes that connect televisions to the Internet.
--Dean Takahashi contributed to this article.
Unlike standard memory, flash chips store data even when a phone or computer is turned off.
