Hot NAND flash market spurs chip alliances

In the race to grab a share of the high-profit generating NAND flash memory business, an increasing number of global chip companies are seeking to share the cost burden of building new production lines and minimize investment risks by entering into alliances.

NAND chips differ from dynamic random access memory, or DRAM, chips by their ability to retain data in electronic devices even when power is switched off, making them ideal for use in MP3 players, digital cameras and cell phones. DRAM makers can switch their existing chip production capacity to produce NAND chips with little new investments.

Intel, the world's largest semiconductor maker, and Micron, the world's third-largest DRAM maker by revenue recently announced that they will team up to set up a joint venture to produce NAND chips by contributing $1.2 billion each. The new company, to be called IM Flash Technologies LLC, is slated to begin production in 2006. Analysts largely applauded the tie-up, saying the alliance between the two U.S. chipmakers will benefit both. According to industry insiders, this alliance is a further sign that the capital-intensive semiconductor industry is forcing companies to seek partnerships to maximize synergies.

The Intel-Micron alliance comes after South Korea's Hynix Semiconductor Inc. (000660.SE) and STMicroelectronics N.V. (STM) of Geneva signed a five-year agreement in 2003 to jointly develop flash memory chips. Hynix and STMicro are also jointly investing in a chip plant in China's Jiangsu province.

Since 2002, Toshiba Corp. and U.S.-based SanDisk Corp. have been producing NAND flash chips under a joint venture known as Flash Partners Ltd. Flash Partners. is currently the world’s second largest 300 mm flash manufacturer. According to a recent report from Web-Feet Research, Toshiba and SanDisk have been steadily gaining market share. A preliminary report shows that together, they will capture more than 27 percent of the NAND Flash segment for 2005.

Gartner forecasts worldwide NAND flash revenue to grow 53.2% this year to reach $10.7 billion and growth to accelerate by 37.3% in 2006 to $14.7 billion. By contrast, the DRAM market is expected to contract 2.3% this year to reach revenue of $25.7 billion and fall 5% to $24.4 billion in 2006.

Source: Dow Jones

Growth drive

Many people believe that Flash memory cards are challenging hard disc drives (HDD) as digital storage tools, but Bill Watkins does not see it that way. The CEO of Seagate, the world's largest manufacturer of hard drives, thinks there are huge opportunities behind the increasing prevalence of flash memory.

"The ongoing digital revolution is bringing tremendous opportunities to the HDD industry," says Watkins. When people download music or movies from the Internet to their computers, they often need to move that content to handheld devices such as MP3 players, mobile phones, and PDAs. These information transfers require storage tools such as Flash and HDD.

The Flash memory chip market is booming because they are increasingly being used in consumer electronics products such as mobile phones. The capacity of Flash is also increasing. Flash storage capacity could break the 100-gigabyte threshold within the next year or two. That level of storage represents a cutting edge technology that is typically applied to notebook hard drives.

Watkins says that although Flash memory cards have become standard technology for handheld products, users still need backups to secure data scattered throughout several devices. Contrary to popular belief, hard drives are even eating into the Flash-dominated market.

"Flash and hard drives will co-exist in mobile consumer electronics applications. Flash is used for low capacity, anything under 4 gigabytes, although this should hit 20 gigabytes by 2009. Hard drives are used for everything else," he says.

"Hard drives will always have a cost per gigabyte advantage, however."