iPhone, new iPods to spur flash prices

Users may see fewer bargains on older digital music players or bundled flash memory cards

Sales of Apple's iPhone and new iPods slated for release later this year will mark the end of cheap flash memory for a time, and that means users may see fewer bargains on older digital music players or bundled flash memory cards.

The iPhone took off to a stellar start in its first weekend, as users braved long lines and the weather for a chance to buy one of the smartphones. Estimates vary, but at least one investment house, Goldman Sachs Group, believes sales the first weekend reached an astounding 700,000 units, and mainly on iPhones with 8GB of NAND flash memory on board for data storage. That's a lot more flash memory than the average handset, which normally comes with just 60MB on board and a slot for flash memory cards.

The NAND flash memory market could see even more pressure later this year if Apple chooses to use the chips instead of hard disc drives in its new lineup of iPods. Apple is expected to release new iPods later this year, including one that can download songs wirelessly using Wi-Fi, and has a touchscreen system similar to the iPhone, analysts say. Such new devices will not only likely attract buying from Apple's usual fan base, but could also put pressure on the NAND flash memory chip market.

The market for NAND Flash memory chips, which store songs, pictures, and other data in consumer electronics devices even when power is turned off, is in oversupply right now, so prices are relatively low and users can still find good deals on flash memory cards and see the usual price declines for older digital music players.

If prices for NAND flash rise later this year, it will indirectly affect users. Most likely, users might not see as many bargains on digital music players or mobile phones with built-in memory in the final months of the year, or perhaps fewer offers for free flash cards with the purchase of a new digital camera or other product.

For example, if iPhone sales hit 5 million by the end of the year, with an average of 6GB per phone, that would be 30 million extra gigabytes of demand, said Mark Leatham, director for flash marketing at Kingston Technology Company, a flash product maker. Currently, the average mobile phone ships with around 60MB of flash on-board, so that 30 million is equivalent to around an extra 500 million phones hitting the market. NAND Flash prices are already rising, this just adds to the demand, he said.

In fact, iPhone sales kicked off with such a bang that the handset itself could move NAND flash memory prices higher. iSuppli believes strong sales of the handset will continue, and the market researcher estimates iPhone shipments to exceed 4.5 million units this year, and then go on to reach more than 30 million by 2011, according to Tina Teng, wireless communications analyst at the company. Other market watchers, such as Goldman Sachs, have even more bullish shipment estimates for the iPhone. The investment banking firm forecasts iPhone sales could reach 5.25 million by the end of this year.

The key for the flash industry is iPod sales, in addition to mobile phone sales, according to DRAMeXchange Technology. The fourth quarter is usually the strongest time of year for handset and iPod sales due to the holiday season, and Apple will need to start stocking up on flash memory in the third quarter to make sure its ready for such heavy demand. If, on top of expected iPhone and iPod demand, Apple puts out new iPods that use only flash memory, Apple could account for 25 percent of quarterly flash memory output, the industry researcher says. That kind of demand could really solve the glut problem in the industry and send flash memory prices higher.

What's more troubling for users is this may be the start of a longer term trend with regard to higher NAND flash memory prices.

Many analysts expect the iPhone to cause a few changes in the mobile phone industry, including the use of more multimedia applications on handsets, hence the need for more NAND flash memory for the storage of pictures, songs, video clips and other data. The amount of NAND flash memory used in handsets is expected to grow dramatically, according to the Semiconductor Industry Association, by a compound annual rate of more than 200 percent through 2010.

NAND flash memory prices have been relatively tame for the past several months due to a glut in the industry. The iPhone, upcoming iPod products and the continued popularity of the chips as the storage of choice for digital cameras and other devices will likely ensure users don't see as many bargains in the future. Most analysts estimate that prices will start rising in the third quarter, which is now, and when companies start making such purchases in the memory chip industry, it only takes a few weeks to a month for the impact to trickle down through the market to end users.