|
San Jose, Calif. -- Following a long, brutal period of overcapacity and pricing pressures, the NOR flash memory market is entering a new era of uncertainty: A sudden and dramatic shakeout means that customers could now face fewer product choices, wild price swings and disruptions in the supply chain.
Instability in the market became apparent last week, when Intel Corp. (Santa Clara, Calif.) and STMicroelectronics (Geneva) both exited the NOR flash memory sector. The two companies plan to sell their respective loss-ridden NOR units--as well as other product lines and fab assets--to a new and independent semiconductor company.
The unnamed company, to be based in Switzerland, will become the world's largest NOR vendor as well as a supplier of NAND flash and phase-change memories. As part of the deal, Intel and STMicroelectronics will each reduce their head counts by 4,000, for a total of 8,000 jobs, most of which will be transferred to the new IC maker.
The move was seen as a positive step for the two chip makers, which can now focus on more-profitable product ventures. "Intel and ST will be able to distance themselves from the difficulties posed by their NOR businesses in the past," said Jim Handy, principal analyst with Objective Analysis (Los Gatos, Calif.), a market research firm.
The new memory company will assume ownership of four fabs from Intel and STMicroelectronics, plus ST's portion of a joint 300-mm NAND venture in Wuxi, China. Ironically, the new company could potentially compete against Intel's separate NAND venture with Micron Technology Inc. (Boise, Idaho), dubbed IM Flash Technologies LLC.
Meanwhile, other major NOR suppliers, including Atmel Corp. and Spansion Inc., are separately involved in major and painful restructuring efforts, causing more unease in the market. And in moves that could further shake up the landscape, Samsung Electronics Co. Ltd. (Seoul, South Korea) has quietly become more aggressive in NOR.
The dramatic changes cap a troubling period in the NOR market. In total, the NOR flash business is projected to hit $7.9 billion in revenues this year, down from $8.6 billion in 2006, according to Web-Feet Research Inc. (Monterey, Calif.).
Primarily geared for code storage applications, NOR is used in industrial equipment, PCs, set-top boxes and other products. But the biggest NOR market, cellular phones, happens to be in a slump. And NAND flash, which is used for data storage and related applications, is taking more of the real estate in higher-end cell phones--sometimes at the expense of NOR.
During the boom times in the cell phone market in the 1990s, NOR flash was a strategic business for the likes of AMD, Intel, Fujitsu, Sharp and ST. But as the cell phone market matured--and NOR became more of a commodity--vendors began to bail out. For example, several years ago Advanced Micro Devices Inc. and Fujitsu Ltd. exited their joint NOR venture, which was later rechristened Spansion and now operates as an independent company.
There has been a persistent oversupply of NOR parts in the market, causing severe pricing pressures for suppliers. As a result, most--if not all--vendors have lost money in NOR over the years. "It's been a bloodbath," said Alan Niebel, chief executive of Web-Feet.
"NOR is not about to disappear," Niebel said. "But unfortunately, we don't see any relief in sight for vendors."
Their customers face issues too. Last week's announcement from Intel and ST could potentially turn the NOR supply chain upside down, creating temporary disruptions in supply and artificial shortages, Niebel said.
For example, Intel and STMicroelectronics also had a second-source NOR product deal, as part of a previous agreement. That arrangement is expected to end when the companies merge their memory businesses--a move that gives customers fewer choices, said Handy of Objective Analysis.
Taking a slightly different view, Doug Freedman, an analyst with American Technology Research Inc. (Stamford, Conn.), said consolidation "could speed up the recovery in the NOR market." The two largest NOR players--Spansion and the Intel-ST flash spin-off--could end up paying more attention to their bottom lines rather than slugging it out on price, as they have in the past, he said.
On another positive note, the booming market for ultralow-cost cell phones could lead to a resurgence in NOR flash in 2008. The NOR market is expected to rebound and hit $8.6 billion next year, according to Web-Feet.
In comparison, NOR's cousin, NAND, is set to grow from $15.1 billion in 2007 to $19.3 billion in 2008, Web-Feet said. NAND is moving into more sockets in the cell phone, but the technology is also seeing huge demand in other exploding markets, such as MP3 players and USB drives.
NAND has seen an incredible price erosion, but lately the market has stabilized. In contrast, NOR remains "a tough market," Handy said. "There is too much capacity in the market."
But the consolidation phase appears to be nearly over in NOR. There are some bit players, to be sure, but for the foreseeable future, the market will be dominated by three major players, he said: Samsung, Spansion and the new Intel-ST spin-off company.
The eventual winner must have the resources to build costly fabs and withstand the brutal IC cycles. It must also have the technology to scale NOR to the 65-nanometer node and beyond.
If that isn't enough, vendors also must develop technology that could replace NOR, which may soon hit the scaling wall. Intel, Samsung and STMicroelectronics have placed their bets on a next-generation technology called phase- change memory, or PRAM.
PRAM will "start to become an important business sooner, rather than later," Handy said. "We have heard a rumor that Nokia is evaluating PRAMs, and these would most likely be from ST, Intel and Samsung, all of whom appear to be sampling devices."
Over time, the overall winner of the NOR battle could be Samsung, the world's largest supplier of DRAMs and NAND flash. A niche player in NOR, Samsung threw down the gauntlet earlier this year by announcing plans to ramp up its NOR production.
"Samsung has set a goal of becoming No. 1 in NOR revenues by 2009 or 2010," Handy said. "Had ST and Intel remained separate entities, this would have been easier. [Now] Samsung will need to grow revenues by another $1 billion to reach its first-place goal."
Samsung's vast resources and marketing clout could pose a problem for Spansion and the new Intel-ST memory spin-off. In fact, Spansion has failed to make a profit since the second quarter of 2004. And Intel has lost money in flash for years. Last month, Spansion said that it would undertake large-scale, cost-cutting measures. The company's goal is to reduce 2007 planned expenses by approximately $50 million to $100 million.
Spansion is also accelerating its separate 300-mm fab and foundry efforts with Taiwan Semiconductor Manufacturing Co., which will help the company's plan to cut costs, said Tom Eby, executive vice president and chief marketing and sales officer at Spansion.
Spansion's SP1 300-mm fab is located in Aizu-Wakamatsu, Japan. The plant, which is scheduled to begin operations in the fourth quarter, will manufacture flash memories using a 65-nm process. It plans to produce its 45-nm parts on 300-mm wafers by mid-2008.
Still to be seen, however, is whether the new Intel-ST flash spin-off will shift its production over to more cost-effective 300-mm wafers. In fact, there are more questions than answers about the new operation. One of them is whether it will wind up competing against IM Flash, a joint venture between Intel and Micron.
The answer is no, insisted Brian Harrison, vice president and general manager of Intel's flash memory group, who will become its CEO. IM Flash sells commodity NAND, while the new spin-off will focus on multichip-packaged products based on NAND, said Harrison |