The NOR flash memory market in 2003 remains in a state of oversupply, apparently belying earlier forecasts that anticipated shortages would begin sending prices higher this year.
Analysts and vendors last week agreed that despite strong customer demand, NOR flash is in ample supply in all densities, with prices continuing to fall. Some of the price pressure is being attributed to die shrinks, which are yielding an ever greater number of NOR flash chips and keeping supply ahead of surging demand.
Analysts also said that, far from raising prices, NOR flash makers are locked in an aggressive battle for market share, which is likely causing further price erosion.
Alan Niebel, an analyst at Web-Feet Research Inc., Monterey, Calif., said NOR prices experienced their biggest drop in the first quarter, while declines so far in the second quarter have not been as steep.
"Prices for 128Mbit NOR in the first quarter of 2003 dropped to $12 from the previous quarter, and have since slipped to $11.30," Niebel said. "64Mbit NOR dropped to $6.50 in the first quarter from the previous quarter, and has gone down to $6.20 so far this quarter."
Philippe Berge, director of central marketing for memories at STMicroelectronics N.V., Rousset, France, concurred that NOR price declines are moderating.
"One factor behind the price declines is the natural cost reduction due to shrinks," Berge said. "But there is also pressure linked to greater supply in the market than demand."
Jason Feinsmith, business director of standard memory products at Silicon Storage Technology Inc., Sunnyvale, Calif., said "strong market demand has increased NOR bit consumption, if not yet stabilizing prices."
That wasn't supposed to be the scenario for this year's NOR market. Last December, many analysts and chip suppliers predicted that booming demand for NOR flash in mobile phones and other wireless handsets would outstrip supply and push up prices.
Intel gets caught
Based on that expectation, Intel Corp. early this year announced that it would raise its NOR flash prices 20% to 40%. Not only was Intel unable to boost NOR prices, but the company in April conceded that the strategy caused it to lose market share.
Jim Handy, a Los Gatos, Calif.-based analyst for Semico Research Corp., said the failed pricing maneuver has cost Intel dearly so far this year. Though it remains the world's leading NOR flash vendor in terms of revenue, Intel's share of the market dropped from 37% in the fourth quarter of 2002 to 26% at the end of the first quarter this year, according to Handy.
Troy Winslow, technical advisor to the Intel flash memory group, declined to comment on Intel's NOR market position. Asked if Intel had abandoned its push to raise its NOR prices, Winslow said, "We have aggressive pricing to reinforce the value to our customers. We are monitoring supply and demand closely and pricing accordingly."
Winslow did, however, address the company's flash market share tacitly by pledging that "we will regain market share in the second half of 2003 based on our fourth-generation StrataFlash memory. It will be the most cost-effective NOR flash in the market," in part because of its use of 0.13-micron process technology.
Despite the large quarterly slip, Intel still leads the global NOR market by a wide margin, according to Handy, who ranked Advanced Micro Devices Inc., Sunnyvale, as the No. 2 supplier with 13% market share in the first quarter of 2003.
Ian Williams, vice president of customer operations for AMD's memory group, also declined to directly address the company's market share, but said that on a sequential basis, AMD increased NOR flash revenue 1%, to $218.3 million, in the first quarter of this year.
End in sight?
Though the latest predictions appear to be more tempered in their enthusiasm, ST's Berge believes booming demand for higher-density NOR could end the oversupply situation.
"The capacity of companies with 0.13-micron processing is limited. At some point demand could grow to force an imbalance with supply," he said.
The price of lower-density NOR flash also was expected to increase in 2003 as chip manufacturers began to divert more production to higher-density parts. That development also failed to materialize as aggressively as predicted and vigorous competition in the segment has kept prices from rising, according to analysts.
Despite the declining prices, total revenue for the NOR flash industry continues to climb. Semico Research is forecasting that NOR revenue this year will grow to $8.9 billion, up from $5.5 billion in 2002, and then jump next year to $16.9 billion.
One factor spurring demand is the ever-increasing memory densities for advanced cellular handsets. Intel's Winslow said the average NOR densities per order are now doubling every 12 months and stood at 64Mbits in May, up from 32Mbits a year ago.
Intel is also reporting that the average density for new design wins for delivery in the second half of 2003 has jumped to more than 128Mbits.
NOR vendors are increasingly using stacked packages to achieve higher densities and also to combine NOR flash and an SRAM die in a single package. Winslow said 85% of Intel's latest design wins are shipping in stacked packages. AMD said it is shipping 40% to 50% of its flash in stacked packages.