Good times for buyers of NOR flash memory: Prices are falling and analysts say they're not likely to go back up. The reason: fewer applications for the product.

The NOR flash memory market is showing its age. Revenue and unit growth has slowed and suppliers are getting out of the market or merging with each other.

Anthony Rakoczy, vice president, commodity management for Celestica in Toronto, says there is stability in the NOR flash market and that trend will continue. He expects no changes in supply or increase in prices, although he expects consolidation.

While the NOR flash market is mature, it will still post modest growth over the next five years despite price erosion. Cell phones will continue to fuel NOR demand as mobile phone manufacturers use NOR for code storage while increasing their use of NAND flash for data storage as well.

NOR is also used in computers and consumer electronics equipment such as DVD players and set-top boxes that require code storage.

Researcher IC Insights says the NOR market will decline 7% in 2007 to $7.77 billion because of price erosion and a 2% drop in unit shipments, though there will be revenue growth. The market will grow 3% per year after that until 2011, when it will be $9.33 billion.

Nevertheless, prices will continue to fall. Thirty percent per year price declines are likely for NOR, according to suppliers and analysts.

Price drops recently have been even steeper because of stiff competition. The average price of a NOR flash device was $2.46 in the first quarter of 2006. By July of this year, the price fell to $1.72. The price decline is the reason that revenue for the year will be down, according to suppliers.

"Prices usually drop by about 30% per year," says Bob Okunski, director of investor relations at Spansion, based in Sunnyvale, Calif. "That's normal. But in the first quarter, prices declined 11% and 18% in the second. So in the first six months of 2006, we have seen a full year of pricing declines," he says.

Suppliers say they can weather a fair amount of price erosion by improving manufacturing efficiencies to reduce cost through die shrinks or moving to larger size wafers.

"The key to dealing with price erosion is reducing cost faster than prices are declining," says Okunski. "If you look at Q2 2006 to Q2 2007 we reduced our cost 40% plus. The problem being that pricing was down 45%."

He says pricing will turn sometime in the second half. That doesn't mean prices will rise. Tags will return to normal 6–8% per quarter reductions, he says.

This means that it will remain a buyer's market for some time.

While pricing is a concern for NOR flash manufacturers, so is finding new applications for NOR. Currently, the future of the NOR market is tied to the fortunes of the cell phone market because cell phones are the dominant user of NOR. Cell phones are using more NOR, because as functionality is added to cell phones, it often requires more code. However, the amount of NOR that is needed is small compared to the amount of NAND flash that is necessary for data storage in phones. A phone may be equipped with 16 or 32 megabits of NOR flash, but 512 megabits of NAND flash.

NAND is used in camera-equipped cell phones and for phones that also have music-player functionality. NOR is used for code storage because its read times are faster than NAND, so cell phones boot up faster when they are turned on than if they used NAND for code storage.

The NOR flash memory market will struggle to post modest revenue growth over the next five years.

The average price of a NOR flash chip will fall by about 30% per year.

Scott Beekman, senior business development manager for communications memory products at Toshiba America Electronic Components in Irvine, Calif., says that NAND and DRAM are replacing NOR in some cell phones.

He says in the past, most cell phones were equipped with low-power SRAM or pseudo SRAM plus NOR for code storage. Then, when phones started to have data storage requirements, NAND was added. However, now some phones have done away with NOR and are using SDRAM and NAND for code storage.

"When a phone is turned on, the coded data gets copied into DRAM. DRAM is good at executing code and it is cheap," says Beekman.

Beekman says in 2006 about one third of cell phones had NAND in them and 15% did not have NOR. "In 2008 we estimate more than 50% of cell phones will have NAND and about 30% will not have any NOR in them." He says moving towards DRAM and NAND makes economic sense because they are the "largest volume memory products and will achieve the most in economies of scale and price take down."

NOR growth will be limited because of a lack of new applications for NOR flash, according to Brian Matas, vice president of research for IC Insights in Scottsdale, Ariz.

"There are just fewer applications out there for NOR than NAND," says Matas. "We don't see big densities being used. We don't see cell phone makers adding a lot more NOR. The NAND segment is being boosted. NOR will grow, but not as much as NAND."

NOR manufacturers agree that NOR won't be used as much as NAND in the coming years. Still, some manufacturers are optimistic about the NOR market.

Case in point: Spansion invested about $1.2 billion in a new 65nm facility in Japan that will build NOR chips.

"We are seeing requirements increasing in our nonwireless business, consumer, set-top box and industrial division (CSID)," says Okunski. "We see more interest in higher density solutions from set-top boxes to automotive electronics to DVD players. They all have more features and more functionality, which requires more code." CSID accounts for about 45% of Spansion's NOR revenue.

Spansion may not be setting a trend, however. "Several leading NOR flash companies have abandoned NOR or have spun it off and joined it up with other companies," says Matas

AMD merged NOR operations with Fujitsu several years ago, resulting in the formation of Spansion. Intel and STMicroelectronics recently made a similar move.