By Cliff Edwards When Intel on Sept. 1 throttled back expectations of third-quarter profits and revenues, execs at archrival Advanced Micro Devices (AMD) merely shrugged. While Intel (INTC) and several other chipmakers in the following days indicated that consumer demand was weakening and supplies were building, AMD said business is booming (see BW, 9/20/04, "Suddenly, It's AMD Inside").
For AMD, its flash memory business may be the secret weapon that tips the earnings tide in its favor this quarter. The memory-chip market posted 31.4% growth in 2004's first half, according to researcher iSuppli. AMD's Spansion unit, the world's third-largest memory supplier behind Samsung and Toshiba, saw its sales jump 7.2%. Intel's memory-chip sales actually grew faster than other suppliers -- an impressive 41%. But flash memory accounted for just 7% of the giant's sales, vs. more than 50% at AMD.
Spansion was formed last year when AMD and Fujitsu formally combined their flash memory operations. The combination, with 7,000 employees and $3 billion in assets, helped make AMD the largest supplier of so-called NOR flash memory, a type traditionally used to hold data in cameras, personal digital assistants, and other handheld devices.
GAINING CONVERTS. Spansion Chief Executive Bertrand Cambou attributes the recent success to its MirrorBit memory. The technology stores data on opposite sides of a memory cell, allowing devices to store and retrieve information quickly. Speed is becoming more essential as cell phones and other devices increasingly offer multimedia applications, such as taking pictures and playing digital music.
Cambou says MirrorBit's second generation, a less power-hungry version that went on sale in mid-June, is gaining converts among the top handset suppliers. Why? Although it sells for about the same price as a rival technology called NAND, MirrorBit is more reliable. That benefits the handset makers, which get a better product at no extra cost, and it benefits AMD, which produces MirrorBit for less than what it cost to make NAND.
Price is no small issue. While phones in particular are doubling the amount of memory they hold, handset makers such as Nokia (NOK), Motorola (MOT), and a slew of Chinese makers try to spend no more than 25% of total manufacturing cost on memory. In comparison to Intel, Cambou says: "We have a superior cost structure. We have more advanced technology. We're not going to let them gain ground on us."
SLOW TO GO THINNER. However, in 2004's first half, Intel has made strides with its own flash-memory technology, Strataflash. The chip giant had been the leading supplier of flash memory but saw its market share tumble in 2003 after it tried to lock in long-term contracts with its customers by threatening to raise prices. Demand is now so strong that in the second quarter Intel boosted production of its memory chips.
But it may have been taken by surprise by the cost advantage AMD has with MirrorBit. The Sunnyvale (Calif.) company is making MirrorBit at a smaller line width than Intel, which allows it to turn out more chips per wafer. Goldman Sachs analysts Andrew Root estimates MirrorBit costs 30% less than a similar Intel offering. The larger chipmaker isn't moving to a thinner line width until next year, spokesman Bill Calder says.
AMD hopes to use that time to its advantage. Cambou says Spansion is aggressively targeting devices other than phones and digital still cameras as new growth opportunities. The nonwireless market made up about 40% of Spansion's $673 million in sales last quarter, and the company is in talks with carmakers, consumer-electronics companies, and networking outfits to add more memory in their products. Says Cambou: "We see plenty of opportunities where we can encroach on other people's turf."
With AMD seeming to be on a roll in both flash memory and in microprocessors, Intel and other rivals should be warned. Edwards is a correspondent in BusinessWeek's Silicon Valley bureau