"We haven't even hit the knee of the growth curve yet...,"
June 26, 2000, Issue: 1217
Section: Supply-Chain Management
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Want Flash? Get A Good Partner -- Shortage of chips forces OEMs to use more creative strategies.
Hailey Lynne McKeefry
Demand for flash-memory devices is growing in every segment, and suppliers can't begin to keep up with it. In fact, there's no end in sight to the shortage.
The flash-chip sector has shaped up to be a seller's market, and as a result, purchasers are being forced to look at innovative ways of working with their memory suppliers and finding new sources of supply.
"The flash market is very tight right now. Most of the vendors are all sold out, so it's definitely an allocation-based market for everyone, including us," said Eugene Feng, director of worldwide marketing at Silicon Storage Technology Inc. in Santa Clara, Calif. "The concern right now for buyers is to establish a relationship with a supplier."
Chip suppliers report they operated at full capacity for much of last year, and will continue to do so this year.
Outpacing the overall chip industry, flash-device unit shipments soared 63.9%, from 743.1 million units in 1998 to 1.2 billion in 1999, according to Semico Research Corp., Phoenix. The research firm is predicting unit sales will grow an additional 16.7%, to 1.4 billion, in 2000.
"We're in a major flash shortage right now, and it has been projected to last at least through 2001," said Sam Young, vice president of marketing at the Flash Business Unit at Hyundai MicroElectronics, San Jose. "It's a seller's market right now, and people are having a great deal of difficulty getting the parts they need. They're having trouble getting commitments from suppliers, often being cut off even for regular orders, let alone additional capacity."
Growth was solid in every end-use segment, particularly in cell phones, PCs, data communications, and set-top boxes. Other products pushing flash demand include cable modems, digital cameras, handheld devices, and MP3 players.
Flash-chip revenue has increased 83%, from $2.5 billion in 1998 to $4.6 billion in 1999, according to Semico, which projects 2000 revenue at $6.8 billion.
Availability is tightest at 2 and 4 Mbits. "Getting low-density flash is a major challenge. The ADSL market took off. And cable modems, in the United States and North America, and Internet appliances are selling like wildfire," Feng said. "These devices all require 2- and 4-Mbit flash, and many vendors are walking away from that market since it isn't very cost-efficient to make."
Vendors are predicting the shortage will only continue for the foreseeable future.
"Clearly, there's more demand than supply," said Nelson Chan, senior vice president of marketing and sales at SanDisk Corp., a Sunnyvale, Calif., supplier of flash-memory cards. "We see, at least over the next six months, that the situation isn't going to change too dramatically. A lot of products we're going into, and markets we're enabling, are starting to really take off.
"We're addressing multiple megamarkets, including digital cameras, PDAs, cell phones, and music players. These are all huge markets and haven't even hit the knee of the growth curve yet," he said.
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