The world’s largest chip maker, Intel Corp., said it plans to invest billions to help ease a global shortage of flash memory chips used in mobile phones.
Intel said about 45 percent of its first billion flash memory chips were sold to cellular-device makers and estimates that about 66 percent of the second billion flash chips are likely to go to the same segment.
Intel has sold 1 billion flash memory chips in the last 12 years and now expects to sell 1 billion in the next two years to meet demand. Flash memory chips preserve information when a device is powered off.
“We are investing billions of dollars in our factory capacity, notably by transitioning from 0.25-micron technology to 0.18-micron production, which enables us to produce more chips on each wafer,” said Ron Smith, vice president and general manager of Intel’s Wireless Communications and Computing Group.
The squeeze on the supply of flash-memory chips and other cellular-phone components came to light last year, with Intel and another leading supplier, Advanced Micro Devices Inc., confessing that demand far exceeded the industry’s ability to supply flash memory. Advanced Micro Devices had been negotiating with customers for factory output.
Most wireless handset manufacturers, however, have been able to secure enough components to meet their production levels, although Motorola Inc. has admitted some pressure and Qualcomm, which sold its handset division to Kyocera Corp. late last year, was hit by component shortages that limited production growth of handsets.
“Intel would not be building this capacity to deal with today’s shortfall,” said Matt Hoffman, wireless equipment analyst with Wit SoundView. “You build because you’re bullish about the overall size of the market, but more specifically flash memory content. These things (wireless devices) are going to have more memory.”
“Shortages will be an issue for another two years,” said Craig Ellingsworth, handset analyst with the Yankee Group. “The semiconductor guys are already up to 100 percent and are going 110 percent where they can keep up with demand.”
UBS Warburg L.L.C. analyst Jeffrey Schlesinger estimates mobile-phone vendors will ship between 425 million and 450 million handsets worldwide this year. Global net additions in the first quarter increased 70 percent from the previous year to 52 million subscribers.
“Both mobile subscriber and phone shipments continue to exceed our expectations as evidenced by the results from the first quarter,” said Schlesinger. “We believe the fundamentals of the overall market are very much intact and tracking ahead of our expectations for the year.”
According to the Semiconductor Industry Association, flash memory was the fastest-growing sector of the semiconductor memory segment in 1999. Dataquest Inc.’s latest semiconductor forecast said worldwide semiconductor revenue will reach $222 billion this year, an increase of 31 percent from 1999.
“The role of semiconductors in end equipment such as next-generation consumer devices is increasing,” said Joseph Byrne, senior analyst for Dataquest’s Semiconductor Worldwide program. “In many product sectors, capacity is falling short of demand, with prices-and therefore semiconductor revenue-rising to equilibrate.”
The random-access memory market is forecast to provide much of the industry’s short-term growth, with revenues growing from $23.1 billion in 1999 to $76 billion in 2002. Long-term projections show an eventual revenue decline.
“In mid-2002, we expect the DRAM market to become oversupplied, leading to price declines in DRAM,” Byrne added. “Within the following 12 months, we project the foundry market will also become oversupplied, triggering soft prices across a range of semiconductor products.”
