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Numonyx, Hynix in Five-Year NAND Memory Chip Tie-Up

Newly-formed memory chip maker Numonyx announced a big expansion on Wednesday to its tie-up with South Korea's Hynix Semiconductor, as the former makes a new push into the NAND memory sector.

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The fresh development agreeement between Hynix, the world's No. 2 maker of memory chips and Numonyx, formed earlier this year with assets from Intel and STMicroelectronics, will last for five years, the companies said.

It involves development of a type of memory called NAND, which is used in everything from high-end cellphones to MP3 players and digital cameras.

About 90 percent of Numonyx's output is now another kind of memory called NOR, used in most older cellphones and still a mainstay in lower-end models that don't require major storage capacity for applications like music and video downloads.

But as the industry shifts more to NAND, a more expensive technology but with much higher capacity, Numonyx would like to steer its NAND-to-NOR output ratio to around 50-50, said Saul Zales, Numonyx general manager of corporate development.

"As part of the company's strategy, we realized NOR was maturing," he told Reuters in a phone interview.

"It was clear we needed to really shift more resources into NAND and invest not only in products but new technologies that will come to bear in two to three generations."

Shares of Hynix, the world's No. 3 NAND maker, were up 4.6 percent. Samsung and Toshiba, the world's No. 1 and 2 NAND makers, were up 2.5 percent and 4 percent, respectively, amid a broader rally in Asian markets.

The fast-growing NAND sector has shown signs of falling into the same cyclical patterns as the older dynamic random access memory (DRAM) sector, with NAND heading into a downturn after a rapid build-up in global capacity.

Hynix currently operates a DRAM plant in China jointly with Numonyx.

In April, iSuppli slashed its 2008 NAND growth forecast to 9 percent this year to $15.2 billion from a previous 27 percent growth forecast, amid signs that buyers were sharply paring back their expectations for products using NAND-type chips.

The new Numonyx-Hynix tie up is not expected to have an immediate impact on the market, as it should take several years to ramp up to significant production.

Hynix is also being hit by a current downturn in DRAM, which represents 73 percent of its overall sales.

"It would be difficult to expect any significant impact from this announcement as neither company is in a position to invest much given the current memory market situation," said Won Seo, an analyst at NH Investment and Securities.

"Hynix is losing ground in NAND and doesn't look to have the funds or the ability to challenge market leaders Samsung and Toshiba. As for Numonyx, the NOR flash market is in standstill, so NAND could offer a solution, although the NOR and NAND markets are fundamentally different."

The tie-up is the second major one in recent months for Hynix, which last month posted a $700 million net loss due to weakness in the DRAM and NAND markets.

In June, the company announced it would buy 9.5 percent of Taiwan's ProMOS for $168 million, expanding its strategic partnership with the company in the DRAM space.