Chipmakers Look to Flash Memory in 2001
By Caroline Humer
Senior Writer
1/7/01 2:35 PM ET
It'll take more than a Handspring (HAND:Nasdaq - news) Visor to get the semiconductor sector
organized in 2001.
Flash-memory intensive applications like the handheld digital assistants such as the Visor and the
Palm (PALM:Nasdaq - news) Pilot, as well as increasingly complex cell phones and digital audio
players, helped keep chip affairs from falling apart during the latter half of 2000 as personal computer
growth slowed. It's flash that makes these techie toys go. Unlike other kinds of memory, flash is able
to retain its data when a device's power is instantly shut off, making it useful for these devices.
For part of 2000, flash was in so much demand that manufacturers couldn't make enough, but that's
no longer the case. Both Intel (INTC:Nasdaq - news) and Atmel (ATML:Nasdaq - news) have
capacity coming on line early this year. On the demand side, an economic slowdown appears so
imminent that the Federal Reserve cut interest rates unexpectedly last week. Combine that with
slowing PC sales -- demand for PCs failed to materialize in the latter half of 2000 and PCs use some
low-end flash memory -- and it becomes clear the near 130% growth in the flash market in 2000 isn't
likely to occur in 2001. Scottsdale, Ariz.-based IC Insights sees flash growing 38% in 2001.
But while flash may be growing more quickly than the rest of the semiconductor industry -- which IC
Insights expects to grow only about 7% this year -- it represents only a small part of the overall
market. In 2000, chip sales totaled about $176 billion, of which just over $10 billion was flash. Intel
and Advanced Micro Devices (AMD:NYSE - news) accounted for about 75% of the flash
business.
For Intel, a strong flash market can help the bottom line, but at current levels, not save it. It accounts
for only a minor amount of the $33 billion in revenue analysts expect it to bring in this year, according
to First Call/Thomson Financial. For a company like Sandisk (SNDK:Nasdaq - news), however,
the flash market has an even bigger impact because it makes only flash products.
Hope
Chipmakers have been looking to flash for strength as demand for other chips -- like commodity
DRAM, or dynamic random access memory -- has waned. For instance, when Micron Technology
(MU:NYSE - news) said last month that revenue fell on lower DRAM prices, it also said that flash was
strong and would help it in the future.
But it may not be a cure-all. There are signs that demand has already begun to wane and that pricing
of certain flash memory is under pressure.
Jim Coleman, an analyst at Fechtor Detwiler, a Boston brokerage firm, says inventories of
16-megabyte flash at distributors is growing. (Chip companies often sell to contract manufacturers
and/or distributors, which then sell to the final customers.) A couple of months ago, a 16-megabyte
chip sold by distributors was going for $16. But because there wasn't enough to go around, Coleman
says, third-party brokers were selling it for up to $40.
Now distributors like Arrow Electronics (ARW:NYSE - news) and Avnet (AVT:NYSE - news) are
selling 16-meg flash for $10, he says.
But the high-end products, like 32-megabyte and 64-megabyte StrataFlash from Intel, are still hard to
get. Unlike the 16-megabyte flash, often used in cell phones, the 32- and 64-megabyte memory are
used in digital audio systems, handheld assistants and set-top boxes. Intel, for instance, plans to sell
a digital audio player that can play up to four hours of music. To get those four hours of playtime, it
uses 128 megabytes of its StrataFlash memory.
More Power Please
Atmel, a chipmaker that derives about 30% of its revenue from flash, says even cell-phone makers
want high-end chips now. John Bryant, vice president of marketing, says cell phones that used
16-megabyte chips are upgrading and have already been switched to 32 megabytes. "By the end of
this year, the phones will go over to 64. Some phone guys have asked us for 128," Bryant says.
He hasn't seen inventories of 16-megabyte chips building up, but says, "I've seen a little bit of
transition as the phone guys are moving from 16 to 32." Digital cameras also use 32-megbyte chips,
while digital set-top boxes for cable and satellite transmission that have traditionally used four of the
16-meg chips are moving to four of the 32-meg chips, he says.
In terms of capacity, Atmel is starting up two recently acquired factories and continues to ramp up
one in France. Its Irving, Texas, plant will start shipping products in the second quarter, and in the
U.K., it will start shipping in the third quarter.
Meanwhile, the largest maker of high-end flash, Intel, is building out its Colorado location, which will
put out products this quarter. The second half of the plant will begin production in the next two to
three years, according to an Intel spokesman. Advanced Micro Devices and partner Fujitsu also
make flash. Sharp makes flash in partnership with Intel and STMicroelectronics (STM:NYSE -
news) is also a large player. Much of the low-density flash, the 4-megabyte variety, is made in
Taiwan, where inventories are building because of the slowdown in PC demand, according to
Bryant, who said he's not convinced this slowdown will last.
There's More
Other companies like Sandisk and Silicon Storage Technology (SSTI:Nasdaq - news) also make
versions of flash memory.
But while capacity may be an important issue, the real question for flash in 2001 may be whether the
U.S. is teetering on the edge of a recession.
"If spending for consumer electronics declines and people aren't buying as many cameras or
handsets or Palm Pilots, you'll see a decline, whether it's the purchase of flash-memory cards or
flash-memory components," says Brian Matas, vice president of market research at IC Insights. |
