"Anobit could have been of great value to Micron"

Micron Ventures managing director Matt Freeman: Micron is looking to invest in companies that develop enterprise storage solutions.

Flash memory developer Micron Technologies Inc. (NYSE: MU) is not well known in Israel. It has began operating in Israel only in the past two years. It's main activity is its fab in Kiryat Gat, formerly Intel Corporation's (Nasdaq: INTC) Fab 18, one of the production units bought from Numonyx in early 2010. Micron Israel, run by general manager Jonathan Wand, currently has 1,500 employees.

The other, quieter, aspect of company activity is investment. Micron business development personnel have been making the rounds in Israel for several years now, looking for potential investment opportunities, with an emphasis on strategic needs.

As fate would have it, Micron's first investment was in Anobit, which develops flash memory storage solutions for smartphones and enterprise networks. The investment was made under the radar in November 2010, as part of a $32 million fund raising round led by Intel Capital.

In January this year, Anobit was acquired by Apple Inc. (Nasdaq: AAPL) for $390 million, and Micron benefitted from the financial success, but the strategic value that the investment yielded is less clear.

"We were surprised by the sale to Apple, although not by the acquisition itself," says Micron Ventures managing director Matt Freeman in an exclusive interview with "Globes". "Anobit was a leader in the field, and I think that Apple understood that some of the technologies developed for them by Anobit had value that they did not want to fall into others' hands."

The other hands Freeman talks about are mainly those of Samsung, today a direct competitor to Apple, with its Galaxy smartphones and tablets, which over the years has become Apple's biggest supplier of memory chips.

Anobit has been incorporated into Apple products through a collaboration with Korean company Hynix, which uses Anobit's technology in the memory it supplies to Apple. However, it is possible that Micron could have used Anobit's technology just as effectively.

"I certainly regret that we did not acquire Anobit before Apple did," Freeman adds. "It could have been a good option for us. You can always understand the true value of a company when there is talk in the hallway about the significance of buying it. After Anobit was acquired, we were asking ourselves if this was bad for us."

And what was the answer?

"Anobit had an excellent team that could have been great added value for Micron."

Two weeks ago, Micron lost its CEO, Steve Appleton, who was killed in a plane crash after 18 years at Micron. Mark Durcan has replaced Appleton. The change in CEO, despite the fact that it has occurred under tragic circumstances, symbolizes not just organizational changes in the company, but strategic as well. It is clear to Micron, as it is to other companies in the industry, that the world of memory chips is going through significant changes.

Micron, whose market cap on Nasdaq is currently $8.3 billion, is one of the leading suppliers of memory components based on semiconductors (as opposed to those based on disks or tapes). The company's traditional memory solution is DRAM fast-access memory for storage and computer systems. Focusing on the DRAM market was the right course when the company was founded in the late 1970s, but as prices fell, along with demand for these memory products, Micron was forced to turn to new solutions.

As of the fourth quarter 2011, DRAM products are responsible for less than one-third of Micron's revenue, which totaled $2.1 billion, compared with more than 40% in the corresponding quarter of 2010. Micron's NAND Flash memory division has taken up the slack, with one-third of sales in the last quarter. It is no wonder, then, that Micron is searching for technologies and ideas representing new growth opportunities.

Micron's $50 million venture capital fund, which was founded in 2006, has so far carried out 20 investments, and according to Freeman will expand in the future if further investments are required. "We should have begun investing earlier," he admits. "We have begun to understand how much innovation there is outside of our company, including in start-ups, and that we want to be a part of this. Our added value is our sales channels, collaborations, R&D, and other aspects that go beyond money. Money is something that is not usually an issue at Micron."

The fund began in the US, but has expanded over the years to Israel, Europe, and China. "In order for a chip company to be competitive, it needs to have a corporate venture capital fund, as well as international coverage," Freeman says. Micron Technology and Business Strategy Development director Yaacov De Russo, who heads Micron's Israel office, believes that the goal of the local activity is, "to understand how Israeli high-tech works; we want the company to be active in a number of different areas in Israeli high-tech, and not just be exposed to start-ups."

"We arrived at the enterprise memory market too late"

Freeman says that in addition to memory companies, Micron is looking for companies that develop LED and display lighting, and solar energy. However, he says, "Naturally, we mostly invest in companies that develop memory solutions, such as new approaches to enterprise storage solutions."

Micron is concentrating its efforts on memory products for servers and enterprise data storage systems, a market in which it has been traditionally less active, rather than supplying memory for personal computers and communication devices. The temptation to expand to the enterprise market is clearly understandable, since it is much more profitable. "We've entered this market a little bit late," Freeman says. "We are making a tremendous effort in the enterprise direction now. This is a niche that we are trying to grow in as fast as possible."

The quickest way to enter this market is through acquisitions, and indeed, a month ago, Micron acquired British company Virtensys, which is active in memory. Theoretically, Micron could have broadened its solutions offering through products developed by Anobit for the enterprise market that is growing so quickly. According to the company's management, just before the acquisition, Anobit's activity was the real thing in this respect. Apparently, Anobit understood that penetrating the conservative enterprise market would be too difficult, and they preferred being bought out instead. It is almost certain, though, that Apple will not enter the enterprise memory industry.

As a result, Micron has reportedly made discreet inquiries about Apple's plans for the enterprise activity, but they realized that Apple had no intention of letting any of the team go, and that it would be integrated into the development activity in the new center in Israel.

However, if Apple wants to spin-off this activity, Micron might be interested. "It is not impossible that we might acquire this activity," Freeman says. "It might not be too late after all."

Published by Globes [online], Israel business news - www.globes-online.com - on February 23, 2012

© Copyright of Globes Publisher Itonut (1983) Ltd. 2012

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