This is an article in BW of 9-9-96 on Intel and Flash Memory:
Business Week: September 9, 1996
Science & Technology: SEMICONDUCTORS
INTEL'S DASH DOWN MEMORY LANE
It's No. 1 in ``flash'' chips, which stay on when the power is off
The memory-chip business is in the doldrums these days. Inventories are high, and prices are low. But there's one bright spot--a niche that's expected to grow by 50% this year. It's the market for so-called flash memories--chips that retain information even when the power is switched off. Another big surprise: The dominant player isn't one of the Asian giants that rule the memory market. It's Intel Corp.
What's the king of microprocessors doing in the cutthroat memory business? Raking in cash, mostly. Intel latched onto flash technology in the mid-1980s, dreaming of a time when computer hard-disk drives could be replaced with arrays of low-cost chips. That did not happen for routine data storage because falling hard-disk prices undercut the appeal of flash ``disks.'' But today, millions of flash chips are going into computers, laser printers, and cellular phones--for storing essential operating programs.
SMALL IS BEAUTIFUL. Now, flash chips are finally supplanting disk drives. Most new notebook computers use flash disks because small size is paramount. The chips are packaged in plug-in housings the size of credit cards and come in capacities of up to 175 megabytes. Smaller, matchbook-size flash cards that can store as much as 8 megabytes are also replacing film in digital cameras and tape in audio recorders.
How big could flash become? Market researcher Dataquest Inc. reckons that sales will balloon from $2.3 billion this year to $7.7 billion in 2000 (chart)--6.5% of the overall memory-chip market then, vs. 4.2% today. Aside from workhorse dynamic random-access memory chips (DRAMs), ``flash is destined to become one of the largest memory products,'' says Prudential Securities Research analyst Mark Edelstone.
Intel, with more than 40% of today's flash market, is licking its chops over the outlook. So is the No.2 maker of flash, Intel archrival Advanced Micro Devices Inc., which has a manufacturing partnership with No.3 Fujitsu Ltd. Together, their 1995 share was 36%. Startup Atmel Corp., based in San Jose, Calif., is also coming on fast. Meanwhile, Toshiba, NEC, and Samsung Group are shifting manufacturing from low-margin DRAMs to highly profitable flash chips.
As competition heats up, Intel could experience a feeling of deja vu. On four occasions, it has bailed out of various memory products when the price-cutting got intense. Each time, says William O. Howe, general manager of Intel's Memory Components Div., management pulled the plug when Intel lost the lead. This time, he vows, ``we're going to keep it.''
U.S. companies pioneered most types of chips, but flash was born at a Toshiba Corp. laboratory in 1986. A descendant of an older type of permanent memory chip, flash uses electronic pulses to erase and write information by switching microscopic gates on or off. But these special gates are hard to manufacture, so flash chips cost far more than DRAMs.
Flash chips found their first big application in storing the basic operating instructions that computers require when they're turned on. Then came digital cellular phones, which need to store wake-up instructions in memory that doesn't go poof when the power is switched off. ``Flash has become the product of choice'' for such jobs, says Alan Niebel, a senior analyst for market watcher In-Stat Inc.
The next flash-forward move is coming from new digital gadgets, such as filmless cameras and tapeless recorders. These markets have spurred development of ``chameleon'' memories by three rival coalitions--led by Intel, startup SanDisk in Sunnyvale, Calif., and Toshiba and Samsung. To improve economies of scale, the same flash card can store audio, video, or text. The card knows whether it is sitting in a camera or a voice recorder and behaves accordingly.
Intel's Howe says he's unfazed by the rising competition--because his company has an ace up its sleeve. Early this year, it revealed a technology that dramatically reduces costs by doubling the data on any size flash chip. To gear up for the expected surge in demand, Intel is spending $1.5 billion on a new flash factory in Israel.
Before Intel became the world's richest chipmaker, recalls Howe, it abandoned whole families of chips to focus on microprocessors. With flash, he insists, ``we're not backing out, because we can afford to stay in.'' If so, Intel may finally have found the technology that will put those bad memories to rest.
By Andy Reinhardt in San Mateo, Calif.
Copyright 1996 The McGraw-Hill Companies, Inc. All rights reserved. Any use is subject to (1) terms and conditions of this service and (2) rules stated under ``Read This First'' in the ``About Business Week'' area.
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