Memory is the key to success in business — that's the pitch of hundreds of self-improvement books, pricey seminars and listen-while-you-drive audio CDs and cassettes. Some people might say knowledge of business fundamentals and an entrepreneurial spirit are important, too, but no one's going to argue that remembering the name of a client's spouse or having the ability to tick off the minutia of your company's balance sheet aren't important skills to have.

Memory now is making its way into the mobile phone — and in big way. What was once a handy little voice device augmented with a contacts list and a clock is now becoming a digital Rolodex that will store weeks of e-mail and a month of calendar appointments as well as hold a few CDs of music and a photo library to boot.

In fact, memory has gone from being an afterthought in the phone — an integrated module attached to the processor — to a major component that accounts for an ever-growing percentage of the cost to manufacture a phone. According to iGillott Research, flash memory accounts for 20% of the cost of materials for the average 3G phone today. Even an entry-level voice phone comes with a megabyte or two of memory to store hundreds of contacts and a backlog of text messages, and the typical camera phone has 8 MB for data storage.

“Historically, up until 2.5G, the power of the phone's memory was very limited,” said Tom Eby, executive vice president for Spansion, a Flash memory maker. “The majority of it was used to run the embedded OS and the protocols on the phone. But now that browsing and data capabilities have been introduced, everything has changed.”

The phone's memory has now become a critical component of the device, ranking up there with the display and the baseband processor. Companies like Intel, Micron, Samsung, San Disk and Spansion are feeding the market. And that market is not small. Iain Gillott, founder of iGillott Research, pointed out that 808 million handsets were shipped last year, each with some kind of memory component. By 2008 or 2009, unit sales will be up to 1 billion globally.

“It makes the desktop PC market look puny,” Gillott said. “Just about every phone shipped last year had some kind of data capability. Many of them had cameras.” And that means they all had storage capabilities, he said.

BUT JUST AS THE SIGNIFICANCE of memory in the handset has increased dramatically in the last few years, so have its costs. Memory itself is roughly following Moore's law, with the cost per bit of storage capacity falling every year. But the new demands for ever-greater volumes of storage capacity have outpaced it. The effect can be seen especially on higher-end phones where MP3 players, high-end cameras, e-mail and mobile operating systems all crave megabytes of storage to feed on. Spansion's Eby said memory in a typical high-end phone or smartphone can exceed a quarter of its total cost of materials. Considering that those phones run several hundred dollars and include pricey components like 3G chips, multimedia processors and high-resolution displays, 25% is a significant percentage.

But it's not just high-end phones that are experiencing that cost pressure. A typical mid-tier feature phone could have 4 MB to 16 MB of memory for storing games, ringtones and the occasional photo. Across the entire spectrum of phone categories, the average memory density (or total storage capacity) of a phone has increased 90% per year compounded, but the cost per bit has only fallen 45% a year. That means that although vendors are seeing cost savings as the technology improves, the savings aren't keeping up with the demand.

That trend is likely to even out, though, as the industry's initial rush on memory subsides, and the market reaches equilibrium. Although Gillott said that the average cost of memory in a 3G phone is now 20%, it will fall to 12% in five years. But not only will the amount of storage capacity in the phone be far greater, the overall cost of a 3G phone will be far cheaper, and volumes shipped will increase by orders of magnitude, Gillott said. Those are economies of scale in action.

However, leveling out has already started to occur, according to Micron, a memory and imaging chip manufacturer. Memory feature creep is already taking place, said Achim Hill, senior director of marketing for Micron's mobile memory group. Just like color displays and cameras made their way down from high-end phones to the mid-range, Flash memory is plying deep into the lower tiers.

“Higher-end functionality always migrates into the lower end,” Achim said. “It won't be long before everyone is using their phone more like a PDA.”

The types of phone memory

NOR

Standing for Not/Or operation, this architecture is the original Flash memory and is optimized for storing application code. It is currently the most used memory in phones, but it is an expensive format on which to store data files such as songs or photos.

NAND

Standing for Not/And operation, this architecture is optimized for raw data storage, but because a phone processor must access that data sequentially, it has trouble executing applications quickly. It is an ideal memory format for megabyte-hungry smartphones, music players and digital cameras because NAND provides more storage capacity for a lower price.

DRAM

Dynamic Random Access Memory is the same memory technology used in PCs to run active applications and open files. However, DRAM wipes itself clean as soon as it stops receiving power. Memory vendors are coupling DRAM with NAND Flash to get the benefits of high-density storage and fast-executing programs, but the extra cost of these multi-architecture solutions usually offsets any cost savings from using NAND instead of NOR.