A Marriage Made in Chip Heaven

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Spansion is the market leader in NOR flash production and accounts for a little more than 30% of the business, according to iSuppli. Intel is currently the No. 2 NOR flash supplier, and STMicro is the third biggest. Together, they'll leapfrog Spansion and make up more than 40% of the market, while South Korea's Samsung Electronics will rise to No. 3, followed by Sunnyvale (Calif.)-based Silicon Storage Technology (SSTI).

Even as Spansion loses its top spot, it stands to benefit as two of its biggest competitors sever ties to strong parent companies. Intel's more profitable divisions essentially subsidized the NOR division's loss-making price war with Spansion. "Intel could have continued to use its deep pockets to set a price floor that wasn't attractive to Spansion, but now the new company will have to justify its own existence," says Kumar of CRT. "We'll finally see some rational pricing." James Doran, COO at Spansion, concurs. "Losing a few hundred million here and there may have been a rounding error at Intel, but it won't be for the new company."

Thinking About Tomorrow

NOR flash is a type of flash memory chip that is used to store and execute software code. It's widely used a huge number of electronic products, from wireless phones to industrial equipment. It's different from NAND-type flash, which is utilized primarily to store data. Both types, however, are known as nonvolatile memory, which basically means that the chip continues to store data even after the device it's used in has been turned off.

One pressure the joint venture won't remove, however, is increased reliance on other forms of memory. New NAND chips from companies like Samsung's OneNAND and mDOC from MSystems, a unit of SanDisk (SNDK), have started to combine the characteristics of NAND and NOR into a single chip, says Kim at iSuppli. Spansion has also been working on a combined NOR-NAND flash chip.

Meanwhile, Intel and STMicro have been thinking further down the road, to a time when NOR flash will be outdated. In June, 2006, the two companies teamed up on research to develop a new technology—known as phase-change memory—that combines the better qualities of both NOR and NAND flash. Intel has shown demonstration chips built on the new technology, but they're not expected to hit the market in large numbers before 2010. Intel's distancing itself from NOR dates at least to late 2005, when it formed a joint venture with Micron Technology (MU) to manufacture NAND flash memory (see BusinessWeek.com, 11/22/05, "Intel Switches Its Chip Bets").

Hesseldahl is a reporter for BusinessWeek.com.