MIS 5000 Case (from Stair p88)

Flash Chips
Sweden is known for its world-class Nordic skiers, people with fair skin an blond hair,
and a telecommunications giant, Ericsson. The company has quarterly results of about
$430 million in profits on about &6 billion in revenues. The president of Ericsson is a
Harley-Davidson motorcycle fan and a hard-driving executive. He has been quoted as
saying, I will be here until they kick me out, I retire or I die.
Not only is Ericsson a leader in networks, it is also a leader in cell phones, and related
equipment. Cell phone usage is expected to explode worldwide as technology improves
and the cost of cellular services continues to decline. Today there are about 275 million
mobile phones in use worldwide, and the growth rate is expected to be about 30% per
year for the next several years.
A key component of any cell phone is the memory device, which id used to store phone
numbers and internal operating instructions for the phone. To get quality memory devices
for its cell phones, Ericsson turned to Intel, the leading hardware maker of chips and
memory devices. The move will guarantee that flash memory chips will bw available for
Ericsson when the demand for these devices skyrockets.
In a recently announced deal, Ericsson agreed to purchase about $1.5 billion in flash
memory chips from Intel over a three year period. Unlike the standard volatile memory
devices used in computers, flash chips are not volatile. They retain their contents even
when power is turned off. In addition to computers and mobile phones, flash chips are
used in handheld personal organizers, digital cameras and music players. According to
Benny Ginman, Intels Director of European sales and marketing, If you look at the
growth in call phones, you can see why we want to be a major supplier in the industry.
To provide high-quality, low-cost chips, Intel continues to innovate. Using new
manufacturing and fabrication techniques, Intel has been able to streamline its operations
and reduce costs. By mid- or late 2000, the company is expected to migrate from more
traditional .25-micron to .18 micron flash chips. This change should allow Intel to
decrease its cost per megabit by about 30% annually. To meet increased demand, Intel is
also acquiring additional manufacturing facilities. In a separate deal, Intel agreed to
purchase two older chip factories from Rockwell International. Intel plans to completely
renovate the chip factories for a total cost of about $1.5 billion.
In addition to flash memory, Intel continues to be a leader in Pentium processors used in
personal computers. Annual sales for Intel are approaching $30 billion. About 80% of
these revenues come from processors, such as the Pentium. The remaining 20% comes
from flash memory and other types of chips used in a variety of operations.

Discussion Questions:
1. Describe the characteristics of flash memory compared to normal memory.
2. What type of devices are ideal for flash memory?
Critical Thinnking:
1. What are the advantages to Ericsson of making a flash memory deal with Intel?
2. Will flash memory become more or less important in the future?