After a decline in 2012, the NOR flash memory market is set to shrink again in 2013 and 2014 as more segments of the handset market eschew the device in favor of alternative NAND solutions, according to IHS iSuppli.

Global NOR flash memory market revenues are forecast to dip to US$3.40 billion in 2013, compared with the US$3.47 billion collected in 2012 and US$4.34 billion in 2011, said IHS. Revenues will contract a further 5% in 2014 before starting to pick up in 2015 and 2016.

The projected fall in 2013 follows a 20% decline in 2012, marking an extended three-year contraction for the memory, IHS indicated.

"NOR, ironically, is turning out to be its own worst enemy in its traditional stronghold of cellphones," said Ryan Chien, analyst for memory & storage at IHS. "Following the path blazed by low-end handsets, feature phones are switching away from parallel NOR and toward cheaper serial NOR. With the feature phone market representing 42% of cellphone shipments in 2012, NOR is facing a tough road ahead. However, new applications for NOR eventually will stop the market's decline."

NOR sales also are suffering because of dwindling demand from PCs, another historically strong market for the memory, IHS noted.

Amid declining sales in handsets and PCs, top NOR suppliers such as Micron Technology and Spansion in 2012 accelerated their efforts to diversify their sales into new segments like home automation and automotive infotainment, IHS observed. But while offering better growth prospects, these segments are much smaller than the handset market. As a result, revenue derived from the use of NOR in handsets and PCs fell more rapidly than increases could be found in the growing industrial and automotive segments, IHS pointed out.

The overall decline in NOR revenues was also due to the loss of market share suffered by higher-cost parallel NOR, IHS said. Gains were made instead by the low-power, and more economical, serial peripheral interface (SPI) NOR segment, which ate into overall revenues.

For Micron Technology, NOR sales proved disappointing, tempered only by some positive signs that mitigated the depressed results, IHS indicated. The Idaho-based manufacturer reported a 6% drop in NOR revenues in its November quarter to about US$220 million, down sharply from US$380 million in the first quarter of 2011. Customer demand remained weak, and many NOR customers continued to transition toward NAND.

Moreover, Micron did not deny rumors swirling around the sale or closure of its NOR fab in Israel. Such a move would be prudent, IHS believes, given the internal shift by the company to phase-change memory, which has the potential to displace applications using NOR flash and is increasingly part of Micron's wireless portfolio.

The mitigating factors in Micron's favor included improving margins due to cost cuts and rising ASPs, which Micron believes will continue in the first quarter of the company's fiscal 2013 as its 45nm process and 300mm wafers for NOR near production. And although Micron's revenues in the embedded memory segment were down 2%, operating income jumped 10%, reflecting the more favorable margin situation. Meanwhile, wireless revenue rose 15%, and operating losses narrowed by 20%.

The NOR industry overall finds itself in the midst of a competitive realignment, IHS said. Producers like Taiwan-based Macronix International and Winbond Electronics, as well as Spansion from California, are adding low-density NAND products to their product lines. In July, flash memory producer Chingis Technology of Taiwan was acquired by Silicon Valley-based ISSI, a developer of low-power, high-speed chips, to boost its specialty memory line. Then in October, Adesto acquired Atmel's struggling SPI NOR line to augment its non-volatile memory business; both firms are based in California. All these developments have either taken active players out of the field, or lessened the emphasis on NOR as existing competitors shifted their emphasis to products other than NOR, IHS suggested.

Yet signs of hope remain for NOR flash, even in consumer devices where the memory is fast being replaced by NAND and other comparable solutions, IHS believes. For instance, after a notable disappearance from Apple's iPhone 4S, NOR returned to the iPhone 5. TVs and automotive infotainment electronics are other high-volume, high-density applications that still require the speed of NOR flash to enable a responsive networked experience. Routers, modems and personal navigation devices likewise use the chips to help leverage the connected trend, while socket wins in the Sony PlayStation 3 and Microsoft Xbox360 suggest a place for NOR in next-generation game console designs.

Given its reduced presence in the traditional handset and PC space, the NOR industry is now enlarging its footprint in key growth segments like automotive and home automation, with applications such as vehicle engine control, temperature sensors, smart meters and home security systems, according to IHS. A leaner, more nimble operating model is also arising throughout the NOR industry, as it contends with lowering prices and a shrinking base in formerly strong established markets.