Gartner: Watch for new iPods to dramatically impact NAND, DRAM markets

June 21, 2006 – Expectations of nearly 40% growth this year in the portable media player (PMP) market — most notably thanks to an upgrade of Apple’s still-wildly popular iPod — will boost already hot demand for NAND flash memory, and could help out the DRAM segment as well, according to a new report from Gartner Inc. NAND flash PMPs account for roughly 80% of the market, vs. 20% that are based on hard disk drives.

PMP shipments are expected to rise to 187.7 million units, up from 134.5 million units last year, the firm noted. The biggest impact will be from an anticipated upgrade by year’s end to Apple’s iPod lineup, adding new high-end units sporting 10-12GB of storage to its lineup of 1-4G NAND flash-based devices. “The impact of an iPod with this storage capacity will have significant implications for the NAND flash market,” following similar market impacts from its other NAND flash versions released in January and September of last year, stated Jon Erensen, senior research analyst for Gartner. “Apple accelerated the highest available capacity, average capacity, and lowered the cost per MB for NAND flash players with the shuffle and the nano, and we anticipate a similar course of events in the second half of 2006.”

NAND flash prices sunk about 25% in 1Q06, and pricing has remained soft in 2Q as well. Gartner expects a 16Gb (2GB) device will sell for about $30 in 3Q06, down from current pricing of $35, but with its buying power Apple could get NAND flash pricing of $25 or even $20, enabling capacities of 12GB with enough room for component and manufacturing costs as well as profit margins and still maintaining a $250 price point, according to the analyst firm. That’s about the same price of Apple’s 4GB iPod nano when it was released last fall, and is only $100 more than its 1GB iPod shuffle introduced in January 2005.

Gartner already is forecasting a 5.8% shortage of NAND flash supplies in 4Q06, only slightly improving to -2.6% in 1Q06, and this shortage will intensify if Apple introduces a high-capacity NAND flash iPod, noted Joseph Unsworth, principal research analyst for Gartner. “Pricing pressure from Apple also puts indirect pressure on competing consumer products, such as flash cards and USB flash drives, which are still the major drivers of the NAND flash market.”

Any stress placed on NAND flash supplies by a new high-end iPod will directly benefit the DRAM market, noted Gartner. DRAM manufacturers have converted massive amounts of capacity to NAND flash due to recent strength in that sector, greatly reducing the volatility of the DRAM cycle, which is spread out across several years and is much less severe. “If NAND flash demand intensifies in response to an aggressive announcement from Apple, then it is expected that several suppliers will move additional DRAM capacity over to NAND flash in an effort to gain market share and diversify their memory portfolios,” said Unsworth. “If this scenario comes to fruition, the prospects for the DRAM market in 2006 and 2007 could be much better than anticipated.”


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