The flash memory market in 2001 is shaping up to be a win-win supply scenario for buyers and suppliers.

For buyers, prices are falling and supply is plentiful. Flash chips that were on allocation in 2000 are now readily available. For suppliers, demand will be strong as more electronics equipment makers use flash and the amount of flash memory in portable electronic equipment grows.

Suppliers may bemoan the fact that demand dropped off in first quarter 2001 and prices fell about 30%-50% from fourth quarter 2000. However, the $10-billion flash market is still expected to grow 19% to $12.6 billion in 2001, says market researcher IC Insights. That may pale compared to the 130% growth in 2000 over 1999, but the overall semiconductor market is expected to fall 9% in 2001, according to market researcher IC Insights. Nineteen percent growth means there will be solid annual demand for flash despite the overall semiconductor industry slowdown.

Flash memory manufacturers say that while they are concerned about the first quarter slowdown, they believe demand will start to build in the second half and continue through year-end. Next year has potential to be another banner year for flash.

"We expect things will pick up in third quarter because we expect people to continue buying computers, automobiles, DSL modems, handheld computers and cell phones," says Kevin Plouse, technical marketing manager for AMD, the second biggest flash memory manufacturer next to Intel. The items Plouse mentions all use flash memory.

Plouse notes also that in the past seven years, quarter-to-quarter flash shipments have fallen on only three occasions, and it never took more than two quarters for unit sales to resume growth.

Cell phones are the single biggest user of flash and will remain so for years. Reason: Cell phone manufacturers keep adding features to cell phones that require more memory. As functionality increases, consumers will be apt to buy new phones.

While cell phone shipments have slowed, there is still strong demand. After growing to about 420 million units in 2000 from about 280 in 1999, cell phone unit shipments are expected to total between 460-480 million units in 2001. Each cell phone has a flash chip.

Most cell phones will probably ship with 16-megabit (Mb) chips, but in coming years phones will use higher density 32-Mb and 64-Mb parts as more units become Internet enabled and have voice-recognition features. "There are going to be real reasons for people to change their phones because new subscribers are about 100 million on average. Growth is coming from people who want to replace their phones.

While cell phones are the single biggest user of flash, there are emerging applications for flash which will drive growth for years to come. Example: automobiles where flash is being used in both engine control and global positioning satellite (GPS) systems. "Now cars are moving more to a PC model where you have Internet access, voice-activated e-mail from the car," says Plouse. "It will be flash-based. Dashboards are one of the fastest growing applications for flash. Car shipments won't go up much but flash content will go up significantly," he says.

Set-top boxes, digital cameras and MP3 players also will drive flash growth. Unit sales of these devices will increase as well as the amount of flash memory per unit. That means a transition to higher density flash devices, which have higher price tags.

Buyers can also expect more devices—such as MP3 players, digital cameras, and other consumer electronics equipment—using nand technology for data storage. Nand flash technology is less complex, and therefore less expensive, than the nor flash technology used for code storage in cell phones. A 64-Mb nor flash chip costs between $20-$25. A 64-Mb nand would be less than $8.00

The flash market is about 65% nor, but that will equalize in coming years as popularity of portable electronic equipment grows. "Nand is more diverse than nor," says Kevin Kilbuck, director of business development for Toshiba. "It is used in everything from digital cameras and MP3 players to huge disk arrays used for flight recorders and military uses. The market for nand will grow two times nor" in the next three years, he says.

Both nor and nand flash will move to higher densities in the coming year. Most nor devices will be 16-Mb units, but there will also be growth in shipments of 32-Mb and 64-Mb devices.

With nand, the most popular densities were 64 Mb and 128 Mb last year. That will shift to 256 Mb this year, says Kilbuck.

Memory cards, which use nand flash, had been eight and 16 megabytes. "Those were built with 64-Mb devices. Memory cards are shifting to 32 megabytes, and 256-Mb devices will be used."

The move to higher density devices is one reason that average selling prices for flash will increase from $5.70 last year to $6.27 in 2001 despite declining prices overall. In general, a 32-Mb part costs twice as much as a 16-Mb device.

However, buyers of low-density parts will continue to see significant price declines, says Brian Matas, an analyst with IC Insights. Tags were down 30% for 8- and 16-Mb parts and 40%-50% for 2- and 4-Mb devices, he says. "Our forecast is for prices to fall 10% on a blended mix across the industry, says AMD's Plouse.

But that may be conservative. Last year, a number of flash makers announced expansions. If new capacity comes on line it will boost supply and further weaken prices.