July 25, 2012

Toshiba Reduces Chip Production to Stabilize Market

Enid Burns for - Your Universe Online

Toshiba, the second largest manufacturer of chip memory, said it will reduce production of NAND flash memory chips by approximately 30 percent. The company released a statement on its website to share the information, and said the reduction will go into effect immediately.

"Oversupply of NAND flash memory in the retail market, for application in USB memories and memory cards, has resulted in continual price declines since the beginning of this year," the statement reads. Since June, Toshiba has adjusted shipments to the retail market in order to control the oversupply problem. Now it will adjust production to allay the situation.

"This move will help to reduce inventory in the market and improve the overall balance between supply and demand," The Toshiba statement says.

Bloomberg reports that the production will take place in Toshiba's Yokkaichi factory in Japan. This factory shares production with SanDisk, which will not be affected, according to confirmation with a Toshiba spokesperson.

Toshiba expects a turnaround. The statement says high growth rates are forecast for PCs and smartphones, which drive the global market demand of NAND flash memory. Once the supply and demand balances out, Toshiba expects the situation to improve, likely between now and September. Flash memory is used in PCs, smartphones, cameras, tablets and other storage devices.

The last time Toshiba produced NAND flash memory at these volumes was in March 2009. The company's stock shares are down 3.3 percent, as a result of the production cut. Toshiba, however said the production adjustment will not require an adjustment to its full-year earnings outlook. Toshiba is the second largest manufacturer of flash memory, after Samsung Electronics.

Toshiba will adjust production again after the market settles. "Toshiba will continue to closely monitor the NAND market and re-examine production at Yokkaichi as necessary," the statement concludes.

Tokyo-based Toshiba is not alone in the sector. The news of Toshiba reducing production on NAND flash memory comes at the same time as Apple reporting third-quarter earnings that were lower than analyst expectations. Forbes reports that other flash memory manufacturers have reported lower demand for their products. The market effect has been a price drop, which shapes profits for individual companies, as well as the sector.

In addition to NAND flash memory, demand for other storage media has also declined. Seagate Technology recently stated that demand for HDDs, hard disk drives, through the end of the year is expected to be weak. Seagate said it expects to ship fewer HDDs in 2012 than the previous year.

Global economic uncertainty may be the cause for lowered demand. Economic conditions are impacting sales of computers and consumer products, according to Forbes. While Europe is heavily affected by the economic uncertainty, parts of Asia are also starting to see slower economic growth, which could also reduce sales of consumer electronic devices.

Finding new markets for NAND flash memory might ease declining demand. A recent analyst report from HIS iSupply identifies a decline in demand for NOR flash memory due to slowing sales in cell phones. The report finds that embedded applications in the tablet, automotive and industrial markets aid the flagging chip demand. Toshiba is a manufacturer of NOR flash memory as well, and is listed among the companies affected by this market.