Flash memory prices to plummet, analysts say

Prices of NAND flash memory could plummet this year because of weak demand and an oversupply of NAND flash in the market, analysts said on Wednesday.

If concerns about the U.S. economy deepen, consumers may reduce spending on the phones and other devices that use NAND flash, weakening demand for the chips and depressing prices, said Nam Hyung Kim, director and chief memory analyst for iSuppli. He predicted that prices could fall by as much as 55 percent this year.

Up to 90 percent of NAND flash is sold as storage for MP3 players and cell phones, or as cards such as the MicroSD that are slotted into digital cameras and other devices.

The reduced price for flash memory could lead to cheaper products for consumers. Apple already dropped the price of its 1GB iPod Shuffle this week, to $49 from $79, partly because of the falling prices of flash memory, said Shaw Wu, an analyst with American Technology Research.

"Flash pricing definitely has an impact in terms of giving Apple the ammunition to be able to lower price points," Wu said. At the same time, flash pricing was down a lot in the fourth quarter of 2007, so Apple could have dropped its prices sooner, though it would have earned it slimmer margin on its iPods, Wu said.

The concerns about the economy and consumer spending prompted iSuppli to slash its revenue forecast Wednesday for the flash industry this year. It now expects global NAND revenue to climb 7 percent and 9 percent, down from its earlier projection of 27 percent, Kim said. Global NAND revenue in 2007 was $13.9 billion, up 12.5 percent from $12.36 billion in 2006, he said.

This year's revenue growth will also be affected by a reduction in NAND flash orders by firms like Apple, Kim said. Apple, one of the largest buyers of NAND flash in the market, ordered $1.2 billion worth of flash memory last year, but has slashed its order forecast for 2008, according to Kim.

Pricing in the NAND flash memory business is cyclical and the declines this year will not be unique. This year's 55 percent decline will actually be slightly less than the decline last year, when prices dropped about 60 percent, Kim said. Last year, however, Apple's iPhone helped to shore up the market when it was released mid-year. Apple isn't expected to have another killer product this year that will bolster the market in the same way.

The killer application that will drive NAND flash memory sales during 2008 will be mobile phones, said Joseph Unsworth, principal analyst at Gartner. Of the 1.2 billion mobile phones expected to be sold this year, about 650 million will have flash card slots, Unsworth said. The sweet spot in NAND flash memory remains 1GB and 2GB capacities as many users can't find the need for more, Unsworth said.

The expected drop in demand isn't leading NAND flash manufacturers to scale back production, Unsworth said. For fear of losing customers and market share, companies are adding production capacity and flooding the market with NAND, he said.