The market is expected to somewhat improve in the second half, with ASPs falling 10 to 15 percent in the third quarter and another 5 percent in the fourth. All told, average selling prices could drop by as much as 65 percent in 2007.
To cope with the new order in NAND, Samsung Electronics Co. Ltd. (Seoul, South Korea), the world's largest NAND vendor, has rejuggled its fab capacity. The company's Fab 15 line was originally supposed to produce NAND, but it is now exclusively making more-profitable DRAM. In its recent results, Samsung said that the first quarter will be a "challenge," due in part to a seasonal slowdown in NAND.
Hynix too is making DRAMs in a fab once earmarked for NAND--its joint-venture fab with STMicroelectronics Inc. in Wuxi, China. Micron Technology Inc. (Boise, Idaho) was supposed to make only NAND parts at its fab in Manassas, Va., but it is producing both DRAM and NAND devices in the plant.
In the fourth quarter, Hynix reported strong results, thanks to its DRAM business. Hynix also said the NAND flash market improved significantly during the first half of the quarter, thanks to a spike in demand from MP3 players, but started to slow again in the second half of the quarter due to worse-than-expected sell-through of the end applications.
Whatever the vicissitudes of the business, vendors are flooding the market with new die shrinks. Samsung and Toshiba Corp. recently announced the world's first sub-60-nanometer NAND flash memory parts. Samsung has begun sampling a 50-nm part, while Toshiba is sampling 56-nm devices.
Analysts don't see a quick fix for the NAND oversupply situation. Promised manufacturing conversion to DRAM is needed, said analyst Doug Freedman of American Technology Research in a published research note. For now, though, Freedman said he doesn't see any new applications for NAND in consumer electronics. "I don't know that I see incremental new products that will eat up a tremendous amount of NAND in the short term." Freedman said the only significant short-term catalyst for NAND would be memory cards for cellular handsets, with users upgrading to increase storage for music files.
Longer term, Freedman said, the market could get a boost from NAND-based solid-state PC hard-drive replacements, such as the one created by Samsung in 2005, and from mobile video applications, which require a significant amount of memory.
Analyst Enderle agreed. He said that NAND-based solid-state hard drives and blended systems that use flash as a "super cache" to improve performance might catch on faster and more broadly as the memory becomes cheaper.
Flash-based computer systems, such as the low-cost Classmate PC that Intel Corp. has pushed for schoolchildren in developing nations, are also getting a boost from the NAND price crash, Enderle noted. If the price of these systems fell by 10 percent, he suggested, it could spur adoption because that $30 or so might be a substantial portion of household income for a family in a developing country.
But Freedman said he does not expect the PC or video applications to substantially affect the NAND market prior to 2008 at the earliest.
What's the timing?
"The new applications are coming, there is no doubt about that," said Alex Gauna, an analyst with UBS Securities LLC. "The question is, what's the timing? And what will the success rate be?"
Like Freedman, Gauna said that video storage and PC disk drives are the long-term key. "At some point, digital movies are going to be a big demand driver for NAND," he said. Hybrid disk drives that combine NAND and rotating storage media will be "an incremental" demand driver, he said. But neither of these applications is likely to drive a significant amount of NAND consumption during the current year, Gauna said.
Similarly, with its initial retail price points of $499 and $599, Apple's iPhone will be too expensive for most consumers and "will not matter" in 2007, Gauna said. "As the 'me too' products start coming out and the technology proves itself on the market, maybe 2008 is a better year."
By the end of 2007, NAND sales will be driven by a "pretty even balance" among MP3 players, cell phones and digital cameras, according to Gauna's estimates. While the three segments will remain equally important, none is likely to radically evolve into a bigger consumer of NAND any time soon, he said. "It's not looking like there will be radical changes in the MP3 player market this year, for example," he said.
In fact, Gauna said, consumption of NAND by Apple iPodswhich almost singlehandedly made NAND a hit product in 2005went "the wrong way" last year. After rolling out a 60-Gbyte video iPod in 2005 along with 2- and 4-Gbyte iPod Nanos, Apple introduced scaled-down versionsa 1-Gbyte Nano and 512-Mbyte iPod Shufflein 2006, Gauna noted.
"The popular iPods have been the lower-density, cheaper ones," he said. "That's not good for the industry. The industry needed the 8-Gbyte Nano [also introduced in 2006] to be hit."
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