Flash Memory Chip Demand to Explode

SEOUL/TOKYO — Roaring demand for flash memory chips, popular in hot-selling music players and digital cameras, will accelerate later this year, but prices will stay weak as industry leader Samsung holds prices down.

Samsung Electronics Co. Ltd., which controls nearly 60 percent of the NAND flash market, is cutting prices in a bid to woo electronics makers to use the erasable and rewritable memory chips and undermine emerging rivals.

"Demand for NAND flash is going to be explosive in the run-up toward the Christmas holiday season, driven largely by MP3 players and digital cameras," said iSuppli analyst Nam Hyung Kim.

The global NAND flash market is expected to grow by 65 percent to $10.9 billion in 2007, according to research firm iSuppli. During the period, overall microchip shipments are likely to expand only 24 percent, industry body World Semiconductor Trade Statistics said.

Most NAND chips are built into memory cards or USB memory products which consumers use to store images, video and music.

NAND flash was used mainly for digital cameras, but the launch of Apple Computer Inc.’s popular iPod Shuffle and other flash-based MP3 players have given the chip an additional boost.

Demand will also escalate as more mobile phone makers include MP3 features in their high-end photo-snapping cellphones.

Apple’s plans to buy as much as 40 percent of Samsung’s flash memory output in the second half for its new 4-gigabyte version of the iPod Mini, to be launched this holiday season, is also expected to create an acute shortage in the NAND flash market going into 2006, said Deutsche Bank analyst D.J. Yook.

Samsung said NAND has been under-supplied for most of 2005, except for a short period at the start of the April-June quarter.

"The NAND market should be very tight until the end of 2006, due to entry of next-generation devices like 2-gigabyte and 4-gigabyte MP3 players, high density memory cards and 3G (third-generation) handsets," said a Samsung spokesman.

Tracking market leader Samsung is Japan’s Toshiba Corp., with a 28 percent share. South Korea’s Hynix Semiconductor Inc. and U.S.-based Micron Technology Inc. also make flash chips.

"At the moment, we can only satisfy about 70 percent of demand and I expect the situation to remain like this into the fourth quarter," said Toshiba President Atsutoshi Nishida.

AGGRESIVELY CUTTING PRICES

Despite the strong demand, analysts and industry officials expect the price to fall further as Samsung cuts prices.

"We expect NAND prices to show a steeper drop toward the end of the year — 15 percent in Q3 and 30 percent in Q4, with an overall decline of 50 percent in 2005," the Samsung spokesman said.

The company aims to introduce higher capacity NAND flash chips at progressively lower prices to boost demand.

"The early launch of higher capacity NAND chips in the market in itself brings about a 30 percent price cut," it added.

Samsung has aggressively courted Apple, offering extremely low NAND prices to encourage it to switch to flash memory from hard disk drives for its iPods, iSuppli’s Kim said.

The price of NAND flash chips is about double that of hard disk drives at the 4-gigabyte capacity level.

"With its abnormally high profit margins for NAND flash, we believe Samsung still will make money on this deal," Kim said.

Samsung said shrinking chip geometries have helped to lower production costs. Shifting from 90-nanometre 2-gigabit NAND chips to 70-nanometre 4-gigabit chips cuts costs by 40 percent.

As Samsung slashes prices, rival Toshiba and new entrant Hynix will have to follow suit to keep their market shares.

Contract prices of 1-gigabit NAND in Asia are seen falling to $4.50 by the second quarter of next year, from an estimated $7.00 in the current September quarter, iSuppli said.