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NAND prices plunge to the pits

Posted: 16 Mar 2007 ?? ?Print Version ?Bookmark and Share

Keywords:NAND? flash? memory? DRAM? solid-state hard drive?

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 Electronics Co. Ltd, Hynix Semiconductor Inc. and others to dump 8Gbit 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.

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.

"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 suppliers?Samsung, Hynix and Micron Technology Inc.?have 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 Q3, said Joseph Unsworth, an analyst with Gartner Inc.

By Q4, 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.

'Almost free'
Indeed, NAND is now "almost free," said Unsworth. "Technically, you still have to buy it from vendors. It's certainly more affordable."

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.

Based on poor OEM demand and the recent financial results from NAND vendors, Unsworth predicts that ASPs will fall by 25-30 percent in Q1 alone. (Hynix sees a staggering 30-35 percent ASP drop in the period.) Unsworth expects another 20 percent drop in Q2, meaning ASPs could fall by up to 50 percent in 1H. Historically, the average price drop for NAND is about 40 percent a year, according to Gartner.

Price of 8Gbit parts sank to a record low of $5.15 at the end of January.

The market is expected to somewhat improve in 2H, with ASPs falling 10-15 percent in Q3 and another 5 percent in Q4. All told, average selling prices could drop by as much as 65 percent in 2007.

Rejuggling fabs
To cope with the new order in NAND, Samsung, 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 Q1 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 was supposed to make only NAND parts at its fab in the U.S., but it is producing both DRAM and NAND devices in the plant.

In Q4, 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.

No quick fixes
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 CE. "I don't 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.

NAND spot prices drop sharply. Average pricing tracked for 65 weeks for various devices.

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.

Matter of 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."

- Mark LaPedus, Dylan McGrath
EE Times

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