Secure Digital ready to make mark on flash

Panasonic's Secure Digital, which was co-developed with SanDisk and Toshiba, is one of five memory formats, including CompactFlash, SmartMedia, Memory Stick and Multimedia Card, vying for the biggest piece of the flash market.

Secure Digital, which first appeared on the market late last year and has yet to gain any significant market share, is a postage stamp-sized card, similar to the Multimedia card format. It is used to store data on portable devices, such as MP3 players, digital cameras, handheld computers and cell phones. In addition to memory, Secure Digital can also allow devices to add technologies, such as Bluetooth wireless connectivity or global positioning system (GPS).

More than 60 products that use the Secure Digital have been announced or are shipping from companies such as Sharp, Casio, Panasonic, Toshiba and Palm. Eastman Kodak and Compaq Computer are also expected to make announcements for products with slots for Secure Digital cards sometime in the near future.

"What Secure Digital has going for it is the ability to secure content and that it is an open format, which is the way to go in terms of attracting new licensees and products," said Marco Wityk, a marketing manager at Panasonic.

However, not everyone considers such security a step forward. Secure Digital includes software that complies with Secure Digital Music Initiative standards protecting against unauthorized replication of copyrighted content. As a result, digital-audio files downloaded from music services, such as Napster, cannot be played on devices that use Secure Digital cards.

In the past, related attempts to prevent piracy have been unpopular with consumers and some manufacturers. In late February, for example, IBM withdrew a proposed method of digitally tagging content to prevent the unauthorized duplication of copyrighted material.

Possible backlash
"In the short term, there is likely to be a backlash from early adopters that could hinder growth" for Secure Digital, said Alan Niebel, chief executive of Web-Feet Research, which closely follows the flash memory market.

Niebel added that other flash formats are likely to face similar issues as they try to balance copyright protection with useful features for consumers.

Such a balancing act is even more difficult in a market known for its instability.

Last year, flash memory was in short supply and, depending on the capacity of a flash memory card, was even more expensive than the devices it was used in. However, this year the flash memory market has been plagued by an inventory glut that has been leading to significant price reductions. Prices have fallen as much as 55 percent this year, reaching 60 cents per megabyte on average, and are expected to fall to 40 cents per megabyte by the fourth quarter, according to Web-Feet Research.

The latest company to lower prices on flash memory cards is Panasonic itself, which cut the price earlier this week on its Secure Digital cards by as much as 75 percent.

The current state of the market, however, is likely just a speed bump in the long road ahead for flash memory. Revenue from flash memory sales this year is expected to come in just 2.2 percent above last year at about $2 billion, according to Web-Feet Research. In 2002, however, revenue is expected to jump 161 percent, to nearly $5 billion. And by 2005 flash memory could be a $15 billion business.

With such a large market for flash memory and the diversity of consumer electronics products that flash memory cards can be used in, NPD Intelect analyst Stephen Baker said that the flash memory market is sufficiently large to sustain several memory formats.

"There is a wide-enough consumer electronics market to sustain all the formats," Baker said. "There isn't a significant advantage of one format over the other for there to be a clear winner, so the goal for the companies behind these formats is to get a critical mass of products to support their format. They have to work to populate as many products as possible."

Secure Digital has some major support behind it, with nearly 300 companies in the Secure Digital Association. The association is a group of companies steering the development and manufacturing of the format. Still, each of the different formats has hundreds of companies supporting it.

"A lot of companies are hedging their bets and supporting more than one format...When a manufacturer decides to produce a product with a slot, that's when a format gets real support," Niebel said.

Motorola, ARM support
Manufacturers that build Secure Digital slots into their products are simultaneously supporting a second flash format. Multimedia cards can be used in Secure Digital slots--though not the other way around.

In addition to the 60 companies that have announced or shipped products with slots for Secure Digital cards, chipmaker Motorola announced last month that it will support Secure Digital as an expansion technology and memory format in its future Dragonball processors for handheld computers. The processors, due out in the first quarter of 2002, will also support Sony's Memory Stick.

Secure Digital also has support from another chip-related company: ARM Holdings last week signed an agreement to include Secure Digital in its processor core used in handhelds and cell phones.

Palm is already taking advantage of the expansion capabilities of the Secure Digital format. The handheld maker has Secure Digital slots in its latest devices, the m500 and m505. And in early June, Palm said a Secure Digital card that allows devices to connect with Bluetooth networks will be available by the end of the year.

Wityk asserts that the growing storage capacities for Secure Digital will also attract licensees. Panasonic said earlier this week it will offer a 256MB card before this year's holiday-buying season and a 512MB card in early 2002. A 1GB card is slated for the end of 2002, and 2GB and 4GB cards are planned for 2003 and 2004, respectively.

Wityk added that the size of Secure Digital cards--about the size of a large postage stamp--will allow it to fit inside small devices, such as watches and tiny MP3 players and cell phones.

A similarly sized Memory Stick format, the Duo, is expected to come out in early 2002 to address consumer electronics markets, such as cell phones and MP3 players.

Companies that support Secure Digital have their work cut out for them. NPD Intelect figures indicate that Secure Digital has yet to gain a significant share of the flash memory market. In May, CompactFlash cards had 42 percent of the retail shipments of flash memory. SmartMedia had 31 percent and Memory Stick had 23 percent. Secure Digital was the laggard with less than 1 percent.

However, Niebel expects Secure Digital will become one of the dominant formats in the future, with older formats, such as CompactFlash and SmartMedia, taking a back seat.

Despite slow shipments early on, Secure Digital is expected to make gains in the next couple of years. Web-Feet Research's projections show that Secure Digital is expected to generate $148.8 million in revenue this year and could grow to $549.9 million next year, a 270 percent increase. By contrast, revenue from the overall flash memory market is expected to grow 161 percent next year.