Intel and AMD reach flash point

It is not just in the PC arena that Intel and Advanced Micro Devices (AMD) are locked in battle. The two Silicon Valley chip manufacturers are also arch rivals in providing flash memory chips to makers of consumer products such as digital cameras and mobile phones.

Flash memory is a rugged, solid-state memory technology that retains information even when the power is turned off. There are two basic kinds. Code storage flash, made by Intel, AMD and Atmel, stores programming algorithms and is largely found in mobile phones. Data storage flash, which is made by SanDisk and Toshiba, stores data and is used in digital cameras and MP3 players.

The use of the technology is growing by leaps and bounds, and on Monday, Intel announced that it had shipped its one-billionth chip. That milestone had taken 12 years, but Intel said it expects to double the figure in less than two.

AMD aims to keep pace. On Tuesday, the company said it will spend about $1.3bn with partner Fujitsu on building a new factory to tackle a worldwide flash memory chip shortage. Construction on the plant in north eastern Japan will begin in August, and AMD hopes to produce as many as 13 million flash memory chips a month by March 2002, increasing this to 52 million chips by March 2003.

Thanks for the memory
In 1999, flash memory was the fastest growing memory product, according to the Semiconductor Industry Association (SIA), with sales soaring by 197.5 per cent over the previous year.

SIA president George Scalise predicts that 2000 will see "another record year" for the chips. With worldwide revenues expected to climb to $10bn this year from $4.5bn last, manufacturers such as Intel, the market leader, AMD, Fujitsu and Sharp respectively, are expected to generate substantial profits from the technology.

Sharp is Intel's technology partner and Fujitsu is AMD's, and the four had a 75 per cent market share in 1999. Atmel, Toshiba, Mitsubishi, Samsung and SST, followed behind in that order.

James Handy, an analyst at Gartner, said flash memory is showing bit growth - measuring popularity, prices measure competition, while revenues are a hybrid of the two - of 100 per cent this year, which is higher than ever before. This compares with bit growth for Dram of 70 per cent and SRAM of 35 per cent.

Not a flash in the pan
The increase in popularity of flash memory began last year. While demand continued to grow, prices stayed flat and even started to rise by the end of the year. As a result, sales rose to $4.5bn in 1999 from an average $2.5bn since 1996.

Handy says the future looks even brighter. The market is expected to expand to $10bn this year, fuelled by higher demand and escalating prices as flash displaces older technologies. "Nothing really competes with it," he claims.

In some applications, flash is replacing Eprom - a venerable but less flexible type of memory. In others, it is replacing mask Rom, which is even less flexible, but the least expensive of all the options, says Handy.

Intel and AMD also plan to produce flash chips using a 0.18-micron manufacturing process instead of the more traditional 0.25-micron process, which will lead to smaller chips and more chips and profits for each wafer.

Intel plans to use the technology to try to boost sales of its other products. The chip giant is building so-called integrated solutions for mobile phones that would combine most of the requisite silicon-flash memory, digital signal processors and microprocessors that it currently produces into a single package.

Ron Smith, vice president and general manger of Intel's wireless communications and computing group, said the company will invest more than $2bn during the next few years in flash memory development.

The investment will largely be directed at building more factory capacity, and at devising ways of increasing the overall density of wafers and chips. "One billion units is a lot of anything in this industry," says Smith.

AMD, meanwhile, generated flash memory sales of $327m in the first fiscal quarter of this year - up by 150 per cent from the same period last year. Jerry Sanders, the company's chief executive, hopes to boost this further by signing a number of multi-year original equipment manufacturer deals.

At AMD's shareholder meeting, Sanders announced that the company had entered into agreements with key customers such as Alcatel, Cisco and Samsung, and expected to announce additional deals in future.

AMD will supply Alcatel with approximately $300m dollars worth of flash memory over the next two years for use in the supplier's digital subscriber line modems, mobile phones and telecoms equipment.

AMD also hopes to minimise the impact of the worldwide flash memory shortage by increasing extra manufacturing capacity in foundries that are currently working for both it and Fujitsu.

However, analysts predict that flash memory shortages are likely to get worse and that consumers will see a tight supply of mobile phones, for example, particularly towards the end of the year. Despite this, they believe that sales of flash memory could overtake Sram this year - a feat that would make the technology the second largest semiconductor segment behind Dram.