John and Thread,
Another interesting article from this morning.
Jim
Portable devices send flash memory
industry soaring
By Michael Kanellos
Staff Writer, CNET News.com
May 9, 2000, 4:00 a.m. PT
Flash memory, which has never been one of the high-tech industry's
glamour products, this year will be one of its most important.
Demand for flash memory--which is used to store data and programming
algorithms in cell phones, digital cameras and MP3 music players--has
surged, creating a spiral of consequences for the industry. With sales
expected to climb from $4.5 billion to $10 billion this year, manufacturers
such as Intel, AMD, Atmel and Fujitsu are expected to reap substantial
profits.
At the same time, the surge in demand is
creating a crimp on supply. Although
manufacturers are rushing to expand
flash factory capacity, shortages exist and
are getting worse. In the end, appliance
makers will likely have to delay products,
water down configurations or even raise
prices. Consumers also will likely see
fewer cell phones, handhelds and MP3
players on shelves.
"Flash this year will be the limiting factor in
how many (cellular) handsets will be
produced," said Eric Rothdeutsch, an
analyst at Merrill Lynch. "I imagine that
the shortage will get a lot worse. We're
going to be tight for all of 2001 at least."
Flash memory serves as a hard drive for
consumer devices. Music, phone lists,
applications, operating systems and other
data are generally stored on flash chips.
Unlike with computer memory, the data
isn't erased when the device is turned off.
There are two basic kinds of flash memory, Rothdeutsch explained. Code
storage flash, made by Intel, AMD and Atmel, stores programming algorithms
and is largely found in cell phones. Data storage flash, which is made by
SanDisk and Toshiba, stores data and comes in digital cameras and MP3
players.
Until last year, participation in the flash market was something of a frustrating
enterprise. For years, the amount of flash emerging from factories, as
measured by the total number of bits, has doubled annually, according to
Dataquest analyst Jim Handy. A total of 1.3 billion MB of flash left factories
in 1999, roughly twice the 690 million MB produced in 1998. Prices have
declined at the same rate, however.
"The new effect of this is that revenue has been static," Handy said. Static
revenues eviscerated profits as well. One semiconductor executive once told
Handy that "in aggregate, the entire flash market has had zero profit."
That picture began to change in 1999. Flash demand continued to grow,
but prices stayed flat and even started to rise by the end of the year. As a
result, revenue went from $2.5 billion, where it had been since 1996, to $4.5
billion. Because manufacturers' fixed costs hadn't changed, the bottom line
was substantially fattened.
"I would venture to guess that $2 billion of that increase was profit," Handy
said.
The future looks even better. The market for flash is expected to expand to
$10 billion this year, fueled by higher demand and escalating prices. "There
is no question that prices are going up," Rothdeutsch said.
The math that makes semiconductors an attractive business will aid these
companies as well, Handy noted. Many manufacturers, including Intel and
AMD, have said they will begin to produce flash chips on the 0.18-micron
manufacturing process. Migration to this manufacturing process will lead to
smaller chips and hence more chips, and profits, per wafer. Concurrently,
manufacturers will begin to pack more bits per chip, Handy said.
"Profits could massively over-account for any losses" in previous years, he
added.
Intel also will use flash demand to boost sales of other products. Ron Smith,
general manager of the company's wireless computing group, said recently
that Intel is working on "integrated solutions" for cell phones that would
combine most of the necessary silicon--flash memory, digital signal
processors and microprocessors--into a single package.
Such an integrated solution would be less expensive but also would give
Intel an opportunity to sell more StrongArm processor cores and an
as-yet-to-be-released digital signal processing core.
"We will be producing four times the megabytes of flash that we produced in
1999," Smith said. "We are adding the equivalent of one factory a quarter."
AMD is equally bullish and is aggressively expanding manufacturing capacity
and lining up multiyear contracts. AMD cooperates with Fujitsu on
manufacturing.
"With the current industry shortage of product, assuring access to adequate
supplies has become a strategic imperative for many of our customers," AMD
chief executive Jerry Sanders said at the company's stockholder meeting.
"As a result, we have entered into multiyear agreements with key customers,
such as Alcatel, Cisco Systems and Samsung. We expect to announce
additional multiyear agreements."
Still, despite plans to increase factory capacity, shortages are likely to get
worse. How the shortage of code flash will affect the cell phone market
remains to be seen. Because the price of cell phones is amortized over the
life of the service contract, people may not see an increase in handset
prices. Instead, companies may decide to lengthen the term of the contract
or change the monthly fee, analysts said.
Consumers also might see a tight supply of cell phones, especially toward
the end of the year. Another effect could be the slowing of the race to add
features because memory won't exist to support those features.
Tight demand for data storage flash, by contrast, is already having a direct
effect on the availability of products. Late last year, manufacturers of this
type of flash, which include SanDisk and Toshiba, allocated their tight
supplies to digital camera manufacturers in Europe. Dean McCarron,
principal analyst at Mercury Research, said that MP3 manufacturers also are
reducing the amount of flash they put into their devices. Some are even
"unbundling" the memory unit.
"It is a tight market," he said. |
