Bright Spots Amid Flash Memory Sales
Arik Hesseldahl, 05.16.03, 8:30 AM ET
[Harry: SSTI and AMTL broke out of their ranges on volume
yesterday.]
NEW YORK - What he's saying may not make much sense at first, but Hector Ruiz is serious.
The chief executive of Advanced Micro Devices (nyse: AMD -
news - people ), interviewed in New York recently, says
his chip factory, or fab, in Austin, Texas, is running at
full tilt. The fab is producing flash memory chips of the
type used in wireless telephones. And while the rest of the
semiconductor industry is still smarting from the worst
downturn in its history, demand for certain types of flash
memory is strong.
And here's the part that seems so weird. Ruiz isn't afraid
to use the s-word, as in "shortage."
"You know, I know that it sounds crazy to say it right now,
but I actually believe that before the end of the year
we'll see a shortage in leading-edge flash technology,"
Ruiz says.
AMD is in an unusual position. Its closest competitor,
Intel (nasdaq: INTC), early in the year unilaterally raised
prices on its flash chips, expecting that demand was
picking up sufficiently to warrant price increases of more
than 20%. Many customers turned to AMD, which in part
explains why its Austin fab is so busy.
The boost in AMD's flash business hasn't been sufficient to
help it out of a slump caused mostly by depressed demand
for its PC microprocessors. Sales in the first quarter of
2003, at $715 million, were down more than 21% compared
with a year ago, and AMD recorded a loss of $1.3 billion
($3.81 per share) on sales of $2.7 billion for fiscal 2002.
The loss included $620 million in special charges.
AMD and Intel both produce a type of flash memory chip
known as NOR flash, which is best used for executing
programs. Cell phones are the biggest consumers of NOR, but
PDAs and laser printers also use these chips.
After a few years of sputtering badly, handset demand is
on the rise. Market research firm IDC says cellular handset
sales worldwide were up by about 16% in the first quarter,
as manufacturers shipped more than 107 million units.
Other NOR suppliers include Silicon Storage Technology
(nasdaq: SSTI - news - people ), which just reported a
$10.7 million quarterly loss on sales of $61.7 million, and
Atmel (nasdaq: ATML - news - people ), which in April
reported a first-quarter loss of $53 million on sales of
$296 million.
The demand picture for the other important type of flash
memory is getting tricky to figure out. NAND flash chips
essentially store data like a hard drive, even after the
power is switched off. NAND goes into digital cameras,
music players, PDAs and similar devices.
While digital camera sales are strong--IDC reckons
consumers will snap up 33.5 million units globally this
year, compared with 28 million last year--analysts say
there is excess NAND capacity. This business currently has
only four suppliers: Samsung, Toshiba, SanDisk (nasdaq:
SNDK - news - people ) and Hitachi (nyse: HIT - news -
people ). But STMicroelectronics (nyse: STM - news -
people ) and South Korea's debt-riddled chipmaker Hynix
Semiconductor plan to enter this market.
"That overcapacity isn't likely to burn off until 2006 or
2007," says Jim Handy, analyst for Semico Research in
Scottsdale, Ariz.
With so much capacity, NAND flash manufacturers are trying
desperately to boost demand by going after the mobile phone
market. Newer phones that handle functions like calendars
and contact lists could become a huge new market for NAND
flash.
Semico's Handy says that NAND unit shipments will jump from
183 million units last year to 300 million this year, but
that price pressure will keep revenue growth down to 10%,
to about $2 billion.
What about removable memory flash cards?
SanDisk and rival Lexar Media (nasdaq: LEXR - news -
people ) sell these cards, which are used in devices such
as digital cameras, handhelds and digital music players.
Semico says that sales of the cards accounted for $2
billion last year and could reach $3.3 billion this year,
growing to $12 billion in 2006. A study by research firm
IDC found that flash cards sold for an average price of 45
cents per megabyte last year but could go as low as 10
cents a megabyte by 2006.
Top Flash Memory Producers
Top 10 Companies Price Change From 52-Week High EPS Growth* 2002 Flash Memory Sales ($mil) Market Value ($mil)
Intel (nasdaq: INTC - news - people ) $20.00 -36% 17% $2,100 $130,680
Samsung** 263.32 -19 42 1,000 40,530
Advanced Micro Devices (nasdaq: AMD - news - people ) 7.47 -42 15 700 2,582
Toshiba** 2.90 -37 NA 700 9,321
Sharp (otc: SHCAY - news - people ) 11.18 -22 39 700 12,596
STMicroelectronics (nyse: STM - news - people ) 21.89 -30 19 600 19,711
Fujitsu Limited (otc: FJTSY - news - people ) 15.78 -59 NA 500 6,319
Mitsubishi (otc: MSBHY - news - people ) 12.76 -26 NA 400 10,002
SandDisk (nasdaq: SNDK - news - people ) 28.90 -3 25 300 2,004
Hitachi Limited (nyse: HIT - news - people ) 39.92 -48 7 300 13,446
Others
Atmel (nasdaq: ATML - news - people ) 2.56 -73 18 NA 1,199
Lexar Media (nasdaq: LEXR - news - people ) 6.00 -26 25 NA 401
Macronix International (nasdaq: MXICY - news - people ) 1.60 -77 15 NA 591
NEC (nasdaq: NIPNY - news - people ) 3.70 -54 NA NA 6,128
Silicon Storage Technology (nasdaq: SSTI - news - people ) 3.59 -72 25 NA 339
Prices as of May 15. *Annualized; projected over the next three to five years. **Traded on local exchange only. NA: Not available. Sources: Semico Research; Bloomberg Financial Markets; FT Interactive, Multex and Thomson First Call via FactSet Research Systems. |
