The supply and demand picture in the NAND flash memory market is dramatically different, depending on who you talk to.
Analysts say there is an overabundance of NAND flash, a condition that is likely to drive prices down through 2004. And with two new players, STMicroelectronics and Hynix, getting ready to enter the market this year, the glut will only worsen.
"The NAND flash market is in a serious state of oversupply at this time. This state of affairs will last into 2004," said Jim Handy, an analyst with Semico Research Corp. in Los Gatos, Calif.
But suppliers dispute that a glut exists and contend that the market's sharp price drop earlier this year actually sparked demand in the second quarter. In fact, Samsung Electronics Co. Ltd., the largest global NAND flash vendor with more than 50% market share, said it has already sold out its NAND capacity for this quarter and expects supply to continue to tighten in 2003.
"In April we saw a tremendous spike in demand and lead times for NAND, which jumped from three-to-four weeks to five-to-eight weeks," said Erik Aldana, product marketing manager for flash memory at Samsung Semiconductor Inc., San Jose. "For the second quarter, we have a backlog now that exceeds our production capacity."
Scott Nelson, director of flash memory business development at Toshiba America Electronic Components Inc., Irvine, Calif., also denied that there is a NAND flash oversupply. "We're coming off a normal cyclical first-quarter low and appear to be recovering quite well," he said.
Prices of NAND flash--which is used as nonvolatile content storage in applications from cell phones to digital cameras and MP3 audio players--fell 50% to 60% in the first quarter of 2003, compared with year-ago levels, said Jim Cantore, an analyst with iSuppli Corp. who is based in San Jose. Cantore attributed the drop to Toshiba's production ramp in Japan and an increase in wafer yields from die shrinks at both Toshiba and Samsung.
The lower prices have made it more enticing for OEMs and systems builders to increase the NAND memory size of flash cards and consumer electronic products, and thus sop up any excess supply, according to chip vendors.
Sanjay Mehrotra, executive vice president and chief operating officer of Sunnyvale, Calif., flash card maker SanDisk Corp., said that NAND price decreases are following the normal semiconductor learning curve as production ramps up.
"The cost of production is falling as we get the benefit of larger economies of scale. This leads to price reductions. This in turn leads to increased demand," he said. The bit-rate growth in NAND memory this year will more than double over 2002, he added.
ST, Hynix enter the picture
Still, NAND flash supply could get out of hand when two new players, Hynix Semiconductor Inc. and STMicroelectronics Inc., enter the market in the second half of 2003, analysts said. Depending on how fast they ramp up, a NAND flash surplus could extend into 2004.
The two major suppliers--Samsung and Toshiba--are taking a wait-and-see stance on the newcomers. Both existing and new players said the NAND market is growing so fast that there is more than enough business for all.
"NAND is a very complex process. Hynix and ST have a large learning curve ahead of them," said Toshiba's Nelson. "We'll see if they can meet their announced production schedule."
Philippe Berge, director of marketing for ST's memory group, does not expect the entrance of ST and Hynix to lead to oversupply. "More availability of product and lower prices will boost demand," he said.
ST and Hynix will each sell NAND chips, which initially will be made at a Hynix advanced DRAM fab in Korea using 0.12-micron technology. Berge said that ST will decide within a few years whether to start production in one of its own fabs. Both companies are expecting to sample a 512Mbit NAND in the second half, with first production slated for the latter part of the year.
For now, Samsung and Toshiba continue to battle for NAND market share. iSuppli's Cantore said Samsung has a 54% global share, with Toshiba at 34%. Renesas Technology Corp. has 11% of the market with a proprietary chip inherited from its partner, Hitachi Ltd.
With such a commanding market lead, Samsung has the option to cut back its NAND production in the current period of oversupply, Cantore said. Samsung "throttled down" NAND production for the second quarter to try to bring supply more into balance with demand.
Samsung makes NAND flash in two DRAM fabs in Korea and can adjust production quantities between flash and DRAM depending on market conditions. "It's only natural that Samsung would shift some production from NAND to DRAM when the flash memory chip was in oversupply," Cantore said.
Samsung's Aldana agreed that the chipmaker "has a lot of flexibility in wafer starts at the two fabs" between NAND flash and DRAM, but denied that it had diverted any NAND output in the first quarter.
A Semico report estimated that NAND unit shipments will jump to 300 million this year, up from 183 million a year ago. Indicative of the plunging NAND prices, Semico said revenue in 2003 will increase only 10%, to $2.2 billion.
One factor spurring a big jump in NAND chips is the continuing race of suppliers to the most advanced process technologies. Samsung has moved to the 0.12-micron node for 512Mbit and 1Gbit chips. The company's Line 12 300mm-wafer fab starts pilot production at the end of the year at 90nm and will make NAND flash and DRAM.
Toshiba is producing NAND flash at 0.125 micron, and by the end of the year will start to transition to 90nm technology, Nelson said. Toshiba is planning a 300mm fab in Yokkaichi, Japan, with pilot production including, NAND chips, starting in 2005.