In Deal With Hitachi, Intel Will Expand Its Flash Memory Business

Intel, the world’s largest chip maker, records most of its profit from its core business, the microprocessors that serve as the brains of most computers. But the company’s side venture in flash memory — which is used to store songs on digital music players and photos on digital cameras — has been another story.

Although Intel does not disclose financial details of the business, flash-based storage is an intensely competitive industry, with specialty companies like SanDisk and giant electronics makers like Samsung and Toshiba battling for market share amid eroding prices of the underlying high-speed memory. Some shareholders have been pushing Intel to exit that low-margin business, which it operates through a joint venture with Micron.

But Intel is taking a different approach. On Tuesday, it will announce a deal with Hitachi to become the sole supplier of flash memory for Hitachi’s forthcoming line of high-end solid-state computer drives intended for computer servers and storage systems. Intel and Hitachi also plan to share research and development costs.

Although solid state drives are expensive, they are faster, tougher and more energy-efficient than traditional drives with spinning disks. Intel and the other players are hoping the drives will become popular for data-center computers used by corporate customers — potentially a more profitable market than the consumer laptops where the solid state drives are mostly used now.

“We believe this combination spreads out the risk and gives the venture the highest probability for success,” said Troy Winslow, a director of marketing at Intel.

Hitachi Global Storage Technologies, formed in 2003 after Hitachi acquired I.B.M.’s storage business, is the third-largest seller of hard disk drives, trailing Seagate Technology and Western Digital. As such, it has deep ties to the server and storage makers, whose corporate customers have often been more willing to pay a premium for higher-performance technologies, like flash drives.

Intel and Hitachi plan to release their first drives in the early part of 2010, making them late to the market. STEC, a company that sells solid state drives, will ship products valued at $50 million to business customers this year, according to its chief executive, Manouch Moshayedi. Samsung is the other leading seller of solid state drives.

Hardware makers like EMC and Sun Microsystems are just beginning to introduce products based on solid state drives. Analysts expect sales of the new drives to accelerate sharply in 2010 and 2011.

“What Intel doesn’t want is another company like Intel dominating the memory business,” said David Wu, an analyst with Global Crown Capital. “They desire anything that weakens Samsung’s presence in storage.”