Crucial 2013 Annual Report Download - page 7

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(3) Inotera: We partner with Nanya Technology Corporation ("Nanya") for the manufacture of DRAM products, and
through December 2012, the joint development of DRAM process technology. In connection therewith, we have
partnered with Nanya in a DRAM memory company in Taiwan, Inotera Memories, Inc. ("Inotera"). Through
December 2012, we had a supply agreement with Inotera and Nanya which gave us the right and obligation to
purchase 50% of Inotera's semiconductor memory capacity subject to specific terms and conditions. Under the
formula for this supply agreement, all parties' manufacturing costs related to wafers supplied by Inotera, as well as our
and Nanya's revenue for the resale of products from wafers supplied by Inotera, were considered in determining costs
for wafers purchased by us from Inotera. Effective beginning January 2013, we are obligated to purchase for an initial
period through January 2016, substantially all of Inotera's output at a purchase price based on a discount from market
prices for our comparable components.
In connection with the partnering agreement, we have also deployed and licensed certain intellectual property related
to the manufacture of DRAM products to Nanya and licensed certain intellectual property from Nanya. Through
December 2012, we partnered with Nanya to jointly develop process technology and designs to manufacture DRAM
products under a cost-sharing arrangement effective beginning in April 2010, under which we shared DRAM
development costs with Nanya. Effective beginning January 2013, Nanya ceased participating in the joint
development program. We receive royalties from Nanya for sales of DRAM products manufactured by or for Nanya
with technology developed prior to April 2010. (See "Item 8. Financial Statements and Supplementary Data – Notes
to Consolidated Financial Statements – Equity Method Investments – Inotera" note.)
(4) Tera Probe: We have an approximate 40% ownership in Tera Probe, Inc., an entity that provides semiconductor probe
and test services. Tera Probe provides wafer probe services for our Elpida and Rexchip subsidiaries.
Manufacturing
Our manufacturing facilities are located in the United States, China, Israel, Japan, Malaysia, Puerto Rico, Singapore and
Taiwan. Our Inotera joint venture also has a wafer fabrication facility in Taiwan. In September 2013, we entered into an
agreement to sell our 200mm wafer fabrication equipment in Kiryat Gat, Israel to Intel and to terminate the related facility lease
with Intel. If this transaction is completed, Intel will manufacture wafers for us at the Kiryat Gat facility through 2014 through
a series of arrangements. In 2011, we sold our wafer fabrication facility in Japan to Tower Semiconductor Ltd. ("Tower") and
entered into a supply agreement for Tower to manufacture products for us in the facility through approximately May 2014. Our
manufacturing facilities generally operate 24 hours per day, 7 days per week. Semiconductor manufacturing is extremely
capital intensive, requiring large investments in sophisticated facilities and equipment. A significant portion of our
semiconductor equipment is replaced every three to five years with increasingly advanced equipment. NAND Flash, DRAM
and NOR Flash products share common manufacturing processes, enabling us to leverage our product and process technologies
and manufacturing infrastructure across these product lines.
Our process for manufacturing semiconductor products is complex, involving a number of precise steps, including wafer
fabrication, assembly and test. Efficient production of semiconductor products requires utilization of advanced semiconductor
manufacturing techniques and effective deployment of these techniques across multiple facilities. The primary determinants of
manufacturing cost are process line-width, number of mask layers, number of fabrication steps and number of good die
produced on each wafer. Other factors that contribute to manufacturing costs are wafer size, cost and sophistication of
manufacturing equipment, equipment utilization, process complexity, cost of raw materials, labor productivity, package type
and cleanliness of the manufacturing environment. We continuously enhance our production processes, reducing die sizes and
transitioning to higher density products. In 2013, the majority of our DRAM production was manufactured on 30nm line-width
process technology. In connection with our acquisition of Elpida, we expect in 2014 that a significant portion of our DRAM
production will be manufactured on 25nm line-width process technology. In the fourth quarter of 2013, a majority of our
NAND Flash memory products were manufactured on our 20nm line-width process technology. We expect to begin
transitioning our NAND Flash production to our 16nm line-width process technology in 2014. Our NOR Flash memory
products in 2013 were manufactured on our 65nm and 45nm line-width process technologies. We manufacture all of our high-
volume NAND Flash and DRAM products on 300mm wafers. In 2013, we manufactured NOR Flash, some specialty DRAM
and non-memory products on 200mm wafers.