Intel Lead Secure for Now

Chip maker's flash fortress could be vulnerable.

Intel Corp. has begun producing flash memory chips that it said are generations ahead of rivals products, but the chip makers failure to embrace another type of flash technology may give competitors the advantage in the future.

Flash chips are the most popular memory solution for small, handheld electronic devices, and sales of flash chips have surged in recent years with the proliferation of cell phones, digital cameras and MP3 music players.

Since 1990, Intel, the worlds largest chip maker, has also been the top supplier of flash memory. Last year, the Santa Clara, Calif., company garnered 23.6 percent of the world market based on unit sales, according to Web-Feet Research Inc., of Monterey, Calif. Advanced Micro Devices Inc. was a distant second, with 13.4 percent of the market, and Fujitsu Ltd. was third, with 10.4 percent.

While flash memory is increasingly being used in a wider variety of products, including set-top boxes and DVD drives, Intel primarily focuses on making chips for the cell phone market. Intel said its chips are used in more than half of all cell phones worldwide.

Two weeks ago, Intel announced it has begun producing a more advanced chip for mobile phones thats 50 percent smaller and more energy-efficient than Intels previous product. Such chips are likely to prove popular with mobile phone manufacturers that value compact form factors and longer battery life.

Intels technological edge stems from its manufacturing of the flash chip using its new 0.13-micron manufacturing process, which enables the company to make smaller, more energy-efficient and faster semiconductors.

By comparison, rival chip maker AMD, of Sunnyvale, Calif., is selling flash using a larger 0.23-micron process and will move to a 0.18-micron process for flash next year.

"Our goal is to ship 0.13-micron flash products before our closest competitors ship 0.18-micron products, putting Intel two product generations ahead of the next-largest supplier," said Curt Nichols, vice president and general manager of Intels Flash Products Group.

The first flash chips built using this process, a 32M-bit, 3-volt Advanced+ Boot Block, will go into volume production by the second quarter of next year, with a 64M-bit version planned for later in 2002. "They probably have a two-generation lead in terms of process technology," said Mario Morales, an analyst with International Data Corp., in San Jose, Calif.

But Intels future dominance in the mobile wireless market could be threatened by its decision to focus on producing only one type of flash memory architecture, known as NOR.

"There are two dramatically different types of flash; theres the NOR technology, and theres NAND technology," said Steve Cullen, an analyst with Cahners In-Stat Group, in Phoenix. "NOR technology is traditionally used in PCs for the BIOS and most cell phones. NAND is the stuff going in flash cards that are used for data storage, like on digital cameras, and digital music players."

Morales said that while all cell phones currently use NOR-type chips that Intel manufactures, he expects NAND, which is most often used to store large amounts of data, will likely be used in future mobile phones and emerging wireless handheld devices.

"NOR has been the dominant technology in the mobile wireless space and will be for the next couple of years," Morales said. "But NAND has a cost advantage on a per-bit basis, and most flash suppliers are planning to do some sort of NAND implementation. Intels sort of following their own route, but I definitely see the market going toward some sort of NAND implementation."

A spokesman for Intels flash memory division rejected that assertion.

"NAND is for large, slow, bulk data storage, similar to a hard drive," said Dan Francisco, a spokesman for the flash division, in Folsom, Calif. "NOR makes perfect sense for cell phones; it has, and it will continue."

But another analyst, Alan Niebel, of Web-Feet, said NAND will likely gain a hold in future mobile wireless devices.

"There is place for it, and a variety of companies are building NAND/ SRAM [static RAM] combo solutions to address it, including Toshiba [America Inc.], Samsung [Electronics Co. Ltd.], Fujitsu and AMD," Niebel said. "Intel does have some weakness in terms of competing costwise vs. NAND for high-density, low-cost flash solutions."

Intels decision to focus solely on NOR while rivals embrace NAND is reminiscent of the chip makers bet in 1997 that Rambus memory would become the most popular DRAM (dynamic RAM) solution for PCs. In what proved for Intel to be a costly miscalculation, DRAM and PC makers and, more important, corporate computer buyers, overwhelmingly rejected RDRAM (Rambus dynamic RAM), choosing instead to support less costly SDRAM (synchronous dynamic RAM).

Underscoring the risk of such a gamble, Intel lost its hold as the worlds largest chip-set maker last year when it was forced to recall about 1 million motherboards built using its RDRAM chip set because of a faulty component Intel added to make the product compatible with the more popular SDRAM.

After years of projecting Rambus widespread adoption, Intel dropped such assertions with its release of a new SDRAM chip set in September.

While Intel is again choosing a different path than its competitors, "theres an important difference," said Nathan Brookwood, an analyst with Insight 64, in Saratoga, Calif. "This time around, Intels taking the more conservative stand. In the chip-set decision, Intel was taking the radical position and predicting the market would shift to something dramatically different. But more often than not, markets dont change radically. This time, its the other guys who are making the riskier bet."