Toshiba fab portends more NAND capacity adds

SAN FRANCISCO—In the wake of Toshiba Corp.'s announcement that it will move forward with construction of a previously delayed NAND flash fab in Yokkaichi, Japan, analysts expect other NAND vendors to ratchet up capacity in light of favorable pricing conditions that have persisted for the past year.

A number of projects put on hold during the dark days of late 2008 and early 2009 are or soon will be back on the table, analysts say. With a NAND shortage that began last year projected to keep prices firm into 2011, vendors will likely be making capacity additions that have not previously been discussed, they say.

"Prudent or not, it's a typical move during this kind of a time," said Jim Handy, a NAND and SSD analyst at research firm Objective Analysis. Pointing to the history of the memory chip business, Handy noted that prolonged periods of stable pricing always induce vendors to add capacity to maximize profits until the industry reaches a state of overcapacity, at which point average selling prices drop.

During the height of the downturn, vendors cut capacity, shutting down older fabs. According to Christian Gregor Dieseldorff, an analyst who tracks fabs at the trade group SEMI, chip manufacturers cut installed capacity by 3 to 4 percent last year. It was the first time capacity decreased in a given year since SEMI began tracking installed capacity in 1995, Dieseldorff said.

The overall installed capacity for memory vendors declined by 8 to 9 percent last year, Dieseldorff said, though he added that this was mostly due to DRAM capacity reductions. He said he does not currently have a figure for capacity cuts specific to NAND memory vendors.

Toshiba, the world's No. 2 NAND vendor behind Samsung Electronics Co. Ltd., announced Tuesday (March 23) that it would break ground in June on its Fab 5 in Yokkaichi on a site adjacent to its four other fabs there. Fab 5 was originally supposed to break ground in 2009, but Toshiba put the brakes on that plan in January 2009 amid the downturn.

According to Dieseldorff, Toshiba's Fab 3 is already fully ramped and its Fab 4 is projected to be ramped up by 2011. Toshiba needs to start construction on Fab 5 in order to have a new fab begin to ramp in the 2011-2012 timeframe, he said.

"Shrinking devices will not satisfy the continued and increasing demand for NAND. We need to build more mega-fabs," Dieseldorff said.