Was 2010 the Last Hurrah for NOR Flash?

The global market for NOR flash memory will decline by almost 6 percent in 2011 after blockbuster growth last year—the first sign of the difficult years that lie ahead as the industry struggles with declining prices, according to new IHS iSuppli research.

NOR revenue in 2011 is projected to amount to $4.8 billion, down from $5.1 billion last year in what had been the industry’s best performance since 2004. The decline this year is in painful contrast to NOR’s 10.9 percent growth in 2010, an unusually strong period for the industry as it benefited from a ramping economic recovery. And while shipments will keep rising in the future as NOR finds its way into more applications, average selling prices (ASP) are weakening as a whole. As a result, NOR revenue will continue to take a hit, declining in the years ahead.

A type of flash memory used to store and run code, NOR can be found in a broad range of consumer electronics items, including mobile handsets, PCs, hard disk drives, DVD players, televisions and set-top boxes.

“In recent years, NOR has been steadily losing its share of the memory market to a rival flash technology, NAND, which costs less and has much higher memory capacity especially suitable for today’s smart phones,” said Michael Yang, senior analyst for memory and storage at IHS. “The robust results of NOR last year came when manufacturers cut back supply after demand for the product recovered.”

In particular, the first half of 2010 proved buoyant, with NOR suppliers optimistic that a rebound in PC shipments would carry NOR revenue higher, Yang noted. This optimism helped to drive a shortage of NOR flash chips, boosted ASPs and led suppliers to report record revenues. The market advance was short-lived, however, and NOR performance in the second half proved disappointing. Optimism for the PC market evaporated, with shipment growth of 6.4 percent in the fourth quarter falling short of the seasonal double-digit percentages that were expected. Supply then caught up to demand and pricing weakened as a result. Potential PC shoppers also started buying tablets—a big threat to NOR because of the fewer chips they require, compared to PCs—further shaking the NOR industry.

The effects of a weaker second half in 2010 showed up in the income sheets of major NOR manufacturers in last year’s fourth quarter. Manufacturers such as Samsung Electronics and Micron reported flat revenues, saved in large part by their less cyclical end markets, while revenue fell during the same period for Eon Silicon Solution, Winbond Electronics Corp. and Macronix International Ltd. An exception was Spansion Inc., which overcame six successive quarters of losses to post gains, given its new focus on embedded products.

As the end markets for NOR increasingly broaden and diversify, the industry’s prospects might well hang on finding a sustainable operating model, IHS believes. NOR’s fortunes appear headed for a decline in the face of two overarching trends: the use of more serial parallel interface (SPI) NOR chips that sport lower ASPs compared to their parallel switch counterparts, cutting further into manufacturers’ revenue; and the shift in handsets—NOR’s largest application—to the use of the rival NAND flash technology.

After basking last year in its biggest revenue yet in more than a half-decade, the industry now confronts a stark new reality—the specter of an eroding market, weakening prices and diminished revenue for this and the years ahead.

IHS iSuppli