SAN JOSE, Calif. Prices for NAND flash memory chips are projected to crater this year, tumbling by a whopping 65 percent and prompting whispers that this once high-margin technology could soon become a nearly free commodity.
NAND was in a state of severe oversupply throughout 2006, and the problems have apparently spilled over into 2007. Starting late last year, poor seasonal demand prompted Samsung, Hynix and others to dump 8-Gbit NAND parts in the spot market. This sent average selling prices (ASPs) plummeting in January, and caused the apparent collapse of the contract market, analysts said last week.
The bad news for NAND manufacturers, however, opens new doors for system OEMs. With NAND prices having sunk so low, system vendors can either pack more memory into enhanced products at the same price points or slash prices on products with current memory capacity, said Rob Enderle, president and principal analyst of the Enderle Group (San Jose).
"Whenever you are able to lower [end product] price and not take a hit on margin, that's a good thing," he said. Multimedia cellular handsets, in particular, should benefit, said Enderle.
To some degree, three big NAND suppliersSamsung, Hynix and Micronhave separately scaled back their fab production targets, moving a big chunk of their respective capacity to more-profitable DRAM. Nevertheless, the shift toward multilevel-cell NAND technology, coupled with new and aggressive die shrinks, is expected to keep the NAND flash memory market in an oversupply and price-pressured mode until the third quarter, said Joseph Unsworth, an analyst with Gartner Inc. (Stamford, Conn.).
By the fourth quarter, Unsworth predicted a slight rebound in ASPs and moderate shortages of NAND devices. Overall, then, NAND vendors are likely to feel more pain in 2007 as margins continue to shrink, and the price tags of select devices could end up approaching production costs.
Indeed, NAND is now "almost free," said Unsworth. "Technically, you still have to buy it from vendors. It's certainly more affordable." In one scenario, the analyst said he heard of a 256-Mbit, USB-based flash drive that sells for $35 each--with a $35 rebate from the manufacturer. In Asia, entry-level MP3 players with 1 Gbyte of storage can go as low as $25, he said.
With NAND becoming cheaper, system vendors are likely to introduce more multimedia handset models and equip them with even greater memory capacity, said analyst Enderle. "For the class of multimedia phones that the iPhone represents, this [falling price of NAND] will be a huge boost," Enderle said. "It will allow more of these devices to come in at lower price points."
Even so, semiconductor analysts don't see anything on the immediate horizon that could drive the demand needed to stabilize NAND prices. New technologies like solid-state storage drives, which are still in the embryonic stages, and Apple Inc.'s iPhonewhich is priced out of the reach of the average handset buyerwill provide no relief this year, analysts said.
Amid an ongoing demand in overall bit growth, the worldwide NAND market is projected to hit $13.8 billion this year, up 6.3 percent over 2006, according to Gartner. But after a banner year in 2005, NAND manufacturers last year saw worldwide product ASPs drop by some 60 percent due to lackluster demand, oversupply and a massive fab buildup as Hynix, Micron, Samsung, Toshiba and others all separately expanded their NAND production.
The weakness has spilled over into 2007, with ASPs in both the spot and contract markets plummeting in January. In fact, the contract market has collapsed to some degree. Large OEMs are abandoning their contracts with NAND vendors, choosing to buy cheaper parts on the spot market instead. For example, spot prices for an 8-Gbit multilevel-cell NAND flash memory fell to a record low of $5.15 for the week of Jan. 26, down from $5.25 the previous week and $5.50 the first week of the month, according to a report from Gartner.
"Some companies are reducing their inventories by pouring products in the spot market," Unsworth said. For example, "Samsung had an abundance of 8-Gbit parts and the spot market is a good place to [offload them]."
Based on poor OEM demand and the recent financial results from NAND vendors, Unsworth predicts that ASPs will fall by 25 to 30 percent in the first quarter alone. (South Korean memory vendor Hynix Semiconductor Inc. sees a staggering 30 to 35 percent ASP drop in the period.) Unsworth expects another 20 percent drop in the second quarter, meaning ASPs could fall by up to 50 percent in the first half. Historically, the average price drop for NAND is about 40 percent a year, according to Gartner.