Flash memory market to pass $20bn by 2010

Flash memory market to pass $20bn by 2010

Nand Flash chips will replace CDs and DVDs, say researchers

Makers of next-generation portable gadgets, such as notebook PCs with no moving parts and pocket-sized video players with huge storage capacities, will be spending over $20bn a year on Flash memory by 2010, analysts predict.

The Nand Flash memory chip market was worth $1.1bn a year in 1999, according to researchers from Nomura Securities, but had grown to $10.6bn by last year, driven by a wave of new products like Apple's iPod.

The unexpectedly rapid growth of the market has inspired other semiconductor makers to spend millions retooling unprofitable DRam memory chip production lines to make Flash memory.

While the market is becoming more crowded, iSuppli analyst Nam Hyung Kim believes that prospects for manufacturers remain good.

"Growth in the Nand Flash market is not driven by trends in pricing, but rather by the explosive expansion in unit shipments," he explained.

"For example, average selling prices for Nand parts declined by about 55 per cent in 2005, yet the Nand industry as a whole generated an estimated $3.7bn in operating profits last year, representing an operating margin of 35 per cent for suppliers."

Although margins for Flash memory itself are starting to fall, the firms which sell the specialised equipment required to make the chips are reaping increasing profits.

"We expect comparatively strong growth in semiconductor production equipment that is used extensively in Nand production lines, in which makers are investing heavily," said Nomura Securities analyst Tetsuya Wadaki.

Nomura expects the market for Flash memory testers, a key piece of Flash production equipment, to grow from $680m last year to $1.06bn in 2007.

Portable consumer products like the iPod and Sony's PlayStation Portable use Nand Flash memory to store music and video.

Unlike the better known DRam chips used in products like PCs, Flash memory can retain data without consuming power. Nand Flash is also simpler and therefore cheaper than the other common type of Flash memory, NOR Flash.

Although market analysts warn that Nand's simplicity makes it slower and more error-prone, its performance is acceptable for storing video and audio files because occasional tiny errors during playback are unlikely to be noticeable.

Error-correction circuitry can be added to make Nand Flash suitable for storing programs or other data in which errors are unacceptable.

Flash is able to ride on the coat tails of manufacturing technology that was originally developed to make other chips, like CPUs and DRams, and is therefore benefiting from the huge investments in these technologies.

Because of its simplicity, Flash has not yet been held back by the technical problems hindering attempts to make other chip types smaller and faster, explained Tetsuya Wadaki of Nomura.

Unlike DRam, Flash contains no capacitors, a component which already appears to be reaching the limits of miniaturisation with currently viable manufacturing techniques.

Nomura predicts that Nand Flash production will expand from 4.4 per cent of the semiconductor market in 2005 to almost seven per cent by 2008.

As existing semiconductor plants are turned over to Flash production, the surge in supply and a dramatic fall in prices could push Flash into new markets.

"If bit costs continue to fall, we think there will be demand for Nand to replace recording media such as MiniDiscs, CDs and DVDs," said Wadaki.

Samsung recently announced a solid state 32GB disk drive based on Flash memory which has enough capacity to replace the traditional disk drive in a notebook PC.

According to figures from US research firm IC Insights, which cover both Nand and NOR flash, Samsung dominates the Flash memory market, generating $6.6bn in sales from 37 per cent of global production.

Toshiba, Intel and AMD spin-off Spansion each hold between 10 and 14 per cent of the market, IC Insights reported.