CEO Bing Yeh said China also consumes nearly 50 percent of SST's discrete flash products, including those shipped through Taiwan. That will increase to about 60 percent or 70 percent in the next few years, he said. "The reason is very simple. All the manufacturers are moving to China and I believe that trend will continue," he said.

Yeh was in Shanghai this week to meet with officials from foundries Grace Semiconductor Manufacturing Corp. and Shanghai Hua Hong NEC Electronic Co., Ltd. (HHNEC). Both foundries are licensees of SST's mainstream embedded SuperFlash technology. Grace is also using 0.25-micron technology to ramp up SST's specialized self-aligned embedded flash process and is transitioning to 0.18 micron.

SST is working more closely with the foundries to make sure it has reliable wafer sources for both its embedded flash and its discrete products. "They (Grace and HHNEC) will be a major source of our foundry wafers to come," Yeh said in an interview with EE Times.

SST is also relying on the foundries, especially HHNEC, as a way to benefit from the increasing demand for SIM cards and smart IC cards that will need high-density embedded flash.

The Chinese government is embarking on a massive, nationwide program that would issue IC-based identification cards to its citizens. Yeh believes those cards will require anywhere from 0.5Mbit to 1Mbit of embedded flash.

China is also the world's largest cell phone market. With the popularity of personalized ring tones and short messaging in China, Yeh foresees higher density requirements for SIM cards. "Some phones will carry that information within the SIM card, which will push the SIM card memory density up to 8Mbits or 9Mbits, so at that point, 0.18 micron or even 0.15 micron embedded technology will be very important here," he said.