Was 2010 the last Hurrah for NOR Flash?

NOR revenue in 2011 is projected to amount to USD 4.8 billion, down from USD 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% 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. 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% 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 and Macronix International. An exception was Spansion, 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.