Micron is a chip company coming to the end of a transition. Having for years made its name building almost nothing but the memory chips known as DRAM that go into computers, it's now finding a fast-growing business in building imaging chips for digital cameras (see BusinessWeek.com, 5/18/06, "Micron's Megapixel Movement").
It's a huge supplier, for instance, of the image sensor chips that go into wireless phones from companies such as Motorola (MOT), Nokia (NOK), and others.
INTO THE FUTURE. More recently, Micron (MU) has placed a big bet on flash memory, first crafting a joint venture with Intel (INTC) to build NAND-type flash memory chips called IM Flash Technologies and then spending $790 million to acquire flash memory card vendor Lexar Media (LEXR).
But Micron has also been in the middle of some of the chip industry's biggest controversies. First, there's its ongoing patent litigation with chip technology designer Rambus (RMBS). Then there's the ongoing investigation into price-fixing by the Justice Dept. And now there are new cases also concerning price-fixing being brought by 34 state attorneys general, including New York's Eliot Spitzer.
BusinessWeek Technology writer Arik Hesseldahl caught up with Micron CEO Steve Appleton to talk about how he sees the future of memory chip technology shaping up and the legal situations touching Micron and its many competitors. Below are edited excerpts.
Micron has certainly been changing a lot lately. First there's the new imaging chip business, and now you're pushing aggressively into the flash memory industry. Why all the changes? We've put everything in place over the last few years. Now it's really about executing on the foundation that we've built. And executing in the NAND flash space means we have to make the joint venture with Intel successful and get the products to market. The retail market is interesting, but it's a subset of what we think can be accomplished in the OEM market [selling to manufacturers of computers and other electronics].
We haven't participated in that market until now. And Lexar was not able to participate in that market because it didn't have a sufficient silicon supply. We can walk into any computer manufacturer in the world, because we already have relationships with them. One of the biggest networking companies said they couldn't work with Lexar in the past but came to us and said they'd like to work with us on building customized controllers to go with the flash and flash cards. It's big business.
Do you see a point where the flash memory or imaging business would be bigger than DRAM? The combination of the two will absolutely be bigger than DRAM. They're not there yet. Imaging is clearly growing dramatically, and we're on the front end of the NAND business. But it's not that far off in the future. It may take 24 to 36 months. Now, where each of them settles out is beyond my ability to forecast. It has a lot to do with how far the imaging chips penetrate in automotive and security and medical. We keep thinking the medical market for imaging chips is going to take off, and we already dominate it. We have something like a 95% share of that market, but it's not that big. It grows every quarter and it's highly profitable. But it just not growing as fast as we thought it would. How all this shakes out is hard for me to say. I do think the NAND and imaging businesses will grow and become bigger parts of our business.
People look at the new joint venture with Intel, IM Flash Technologies, and wonder how much of it is going to be an Intel show and how much a Micron show? It's 50-50. Well, really 51-49. We share according to our equity ownership. But everything else is 50-50. Where it's not split evenly is service. They service their customers and we service ours. But it's a joint product development group where we work hand in hand. Now it is true that because of our historical expertise, we have been providing most of the operational expertise. I think over time that should equalize.
We're starting to see hybrid hard drives that contain some flash memory. How do you see that business shaping up? It's funny how we've said that we're sort of moving away from the PC business and memory. But I don't think there's any question that after a few years we'll come back to it. The average notebook today has a 30-gigabyte drive. Another way to think about it, as soon as the price for the memory comes down to about $60, the PC makers will switch over to solid state, or hard drives based on NAND. And if you do the math, that is about five or six years out before we get to the mass notebook market.
Do you mean full solid state, no hard drive? Yes, actually I do.
Bill Watkins, the CEO over at Seagate, thinks otherwise. Yeah, of course. But I don't think it's a question of if it happens, but when. Now I don't think the hard-drive guys will go out of business, and I never have suggested that. There is a tremendous need for high-capacity storage drives. But when it comes to portability, the benefits from solid state are just stunning compared to mechanical. Reliability is one thing. Another is power consumption. If you had a solid-state drive compared to a hard drive today you'd double your battery life.
The FTC recently decided that Rambus unlawfully obtained a monopoly on certain technologies now used in mainstream memory chips that companies like Micron manufacture. Was the FTC's decision a vindication of sorts given that you've been saying much the same thing about Rambus in your various lawsuits? We've said for quite some time from our perspective that Rambus engaged in what we think was illegal and deceptive activities at JEDEC [The Joint Electron Devices Engineering Council]. And we're just glad to finally see it come to the surface as to what those activities were. They tried to force us to go down a path that was not the best solution for the industry. My only comment is that the legal process is a long one.
The Justice Dept., several state attorneys general, and Rambus all say there was price collusion going on between the memory chipmakers. And among the evidence that has come to light have been e-mails—some from within Micron—containing references to discussions about prices with people outside the company. To an outsider, seeing these e-mails certainly gives those claims some weight. What do you say to that? Actually, the state attorneys are asking the same questions [as the DOJ], and I think they were being pressured by a statute of limitations, as opposed to suddenly asking these questions on their own. There has been no new data to my knowledge probably in two or three years. When we got subpoenaed by the DOJ and the case came forward, we just said to them "We'll give you everything we have."
You have cooperated in the case. But will Micron's role in all this ever be fully disclosed? The attorneys have all the information. There aren't any more secrets left. I would say that we put in stricter compliance requirements as a company. But in the electronics industry, there's a long history where a lot of salespeople talk to a lot of salespeople. Essentially, from what I've been told and from what I've read, the vast majority of discussions have involved salespeople talking to different salespeople in different parts of the world about what's going on with customers. Now it doesn't matter, that's still a violation of antitrust law. In our own case, the only thing that has been made public about us is that we had an individual who wasn't found guilty of price-fixing but was found guilty of obstruction of justice, and that was against what the company said to do. We told everyone to get their documents together and just hand them over. And this individual decided for whatever reason that that was not what he was going to do, and he was prosecuted, and he eventually was let go from the company. The fact of the matter is that e-mails that have been circulated are all in the public domain. There's nothing new that keeps surfacing here.
So everything Micron could have possibly done wrong in this matter has come to light and there's nothing more to be learned? With respect to the DOJ case, I can say that. We have 20,000 people all over the world doing things. We put policies in place to try to make sure we have compliance and so on. There is nothing new that I'm aware of, and there hasn't been in three years, since the case was first brought. They're now trying to make them more public.
You've been fighting with Rambus now for years. Do you ever get sick of dealing with it and think you'll just settle and make the whole thing go away? There is always a cost-benefit analysis you have to do. First of all we don't think we violated their technology. Secondly we think the IP they did get, they got while deceiving us and others while sitting at the table at JEDEC. So sometimes you have to stand on principle. We have three cases that have to be tried, and one has to do with spoliation of evidence. What we believe is that not only did they engage in illegal and deceptive practices, they knew they were going to litigation and they destroyed trash cans' full of documents in preparation for this, and that has already been proven. Infineon won that case against them. Next year we'll get to a trial on the actual merits of the patents, and then one year after that, we try their behavior at JEDEC. We're still a long ways out. Again we believe we're right and that is how we're approaching it.
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