iSuppli dips memory outlook, but still positive about 2006

March 28, 2006 – New forecast data from iSuppli Corp. indicates concerns over NAND flash memory demand, but continued optimism for DRAM sales and the memory market overall.

The El Segundo, CA-based analyst firm has trimmed its NAND flash market revenue forecast to $13.8 billion this year, down from earlier projections of $16 billion, due to growing pessimism about recent price declines. Still, that’s a 28% increase from the previous year, making NAND flash one of the fastest-growing segments in the global semiconductor market. Together, DRAM and NAND flash, the two largest segments of the semiconductor memory market, are seen achieving 13% growth in 2006, topping $40.2 billion, nearly doubling the 7.5% growth seen in 2005.

The basis for iSuppli’s optimism lies in viewing NAND flash demand not in terms of pricing, but by “explosive” chip unit shipments, according to principal analyst Nam Hyung Kim, in a statement. Illustrating how pricing can be deceptive as a gauge for market health, Kim pointed out that ASPs for NAND flash parts dipped by 55% in 2005, yet the NAND industry managed to turn an operating profit of $3.7 billion and margins of 35%. Kim expects another 55% ASP decline this year, meaning that suppliers should be profitable once again, although operating margins might suffer due to aggressive competition.

iSuppli also sees little slowdown in the “blistering pace” of NAND flash unit shipments, lowering its forecast for 2006 NAND flash unit growth only slightly to 187% vs. 207% previously. A 1Q06 NAND slowdown was not unexpected, although heavy holiday demand for MP3 players (notably Apple’s wildly popular iPod) quickly waned, leaving lots of inventory on shelves. As a result, demand for NAND flash is slower than anticipated in 1Q06, not only from Apple but also other MP3 makers who stocked up on NAND during 4Q anticipating tight supplies.

While NAND demand goes through some growing pains early in 2006, iSuppli sees optimism in DRAM sales rising through 2006, with prices rising early in 2006 (despite a fizzle in March, which will hamper any price rebound in April). The firm now expects worldwide DRAM revenues to rise 6.2% to $26.4 billion this year, vs. a previous 5% forecast. The expected big driver of the summer — Microsoft’s Vista operating system, seen as a benefit for both microprocessor and memory upgrades — has been delayed, but iSuppli noted that its influence probably would have been felt in 2007.


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