New PRAM a Boon for Intel's & ST's "Numonyx" Spin-Off

Implications: An obscure new semiconductor memory technology called PRAM (or PCM) promises to eventually change the nature of the flash memory market.  Companies who are on top of PRAM, mainly Intel, STMicroelectronics (and their Numponyx spin-off) and Samsung are well positioned to capture this technology's success when it develops.  Energy Conversion Devices, the owner of the phase-change technology, will also benefit from royalties over the long term.  Spansion's not talking, so we don't know how this will play out for them, but BAE, Elpida, Hynix, and Qimonda are licensees, so they are likely to move in a similar direction.

Analysis: Intel and STMicroelectronics this week announced that they had found a way to bring MLC (multilevel cell) technology to their phase-change memory (also known as PRAM or PCM).  Although this announcement was made at a very technical conference, it has business implications that would not normally be encountered at such a gathering.

We note that these two companies are collaborating on PRAM technology and that it will soon be transferred to their flash memory spin-off named Numonyx.

Why is this announcement important?  MLC allows a memory chip to shrink to roughly half the size of its non-MLC counterpart.  This means that the manufacturing cost is cut by more than half.

The memory market is cost-driven - very little else matters.  In rare circumstances improved functionality will justify higher prices, but for the most part cost is the overriding concern.

PRAM, once it gains some acceptance, will only win an important share of the memory market if its cost becomes competitive with NOR.  Since MLC NOR has been shipping in volume for most of this decade, and since PRAM chip sizes are about the same as their non-MLC NOR counterpart (called SLC for single-level cell), the lack of an MLC PRAM has prevented this technology from making much progress.

With MLC, PRAM should lose its die size disadvantage against NOR flash.  Does this mean that PRAM can now start to take a portion of the $7 billion NOR market?  Well, not quite yet.  Something else is standing in the way: Wafer cost.

Any new semiconductor material faces an issue with the economies of scale: A wafer with a new material is bound to be much more costly than a pure silicon wafer until it ships in high volumes, and the volume won't increase until the price is competitive with flash.  It's a Chicken And Egg problem.  NOR uses pure silicon, but PRAM needs a silicon wafer with a new phase-change material added.  This will keep PRAM wafer costs high until high volumes are reached, and a high wafer cost translates to a high chip cost.

Right now you're probably wondering why Intel and STMicroelectronics would embark on such a hopeless journey.  What is driving these companies to invest research in a technology whose cost continues to lag behind that of NOR?

It is widely accepted that NOR will hit a scaling limit after which the chips will no longer shrink over time, so costs will level off.  Researchers originally expected to hit this brick wall in 2006 at 65nm.  Some breakthroughs were made and the process has been coaxed to go to 25nm which should allow costs to continue to shrink into 2012.  There is some evidence that NOR could be coaxed to go down to 10nm and last until around 2016.

PRAM has no such barrier, so it will continue to shrink long after NOR has hit its limit.  Once NOR reaches its scaling limit PRAM costs should speed right past it.  The big problem today is that the NOR brick wall keeps moving ahead of us.   Until then PRAM should have trouble competing on cost, preventing it from reaching the necessary volume to get the wafer costs down. 

There's one other consideration that works in favor of PRAM: It doesn't have to perfectly match NOR's cost in order to take share away.  PRAM has a faster write than NOR, so in many cases a PRAM chip can replace a NOR and a RAM.  This means that the cost target is something higher that accounts for the price of the NOR and the price of the RAM.

PRAM is a technology for the future, and any company that can make its costs low enough to compete against NOR will win in the long run.  It looks like the Intel/ST Numonyx JV will be an early provider of PRAM, leading to possible success in that market.