Analyst: Worst nearly over for NAND market, DRAM heading down

March 27, 2007 – After nearly half a year of slumping prices amid circumstances that have been “the worst in the history of the market,” suppliers of NAND flash memory may finally see a break in the clouds as supplies start to meter out, according to a new analysis by iSuppli Corp.

The firm cautions that “brutal conditions persist,” but nevertheless it is raising its rating for the NAND flash market to “neutral” from “negative,” saying that “the turning point is near.”

The firm says its NAND Momentum indicator, which tracks various market factors, finally moved into positive territory again last week after being in the negative since mid-November. The main reason: NAND producers have fled to higher-margin DRAM production, slowing the NAND flash supply build and helping mitigate devastating price erosions, noted Nam Hyung Kim, director and principal analyst at iSuppli, in a statement.

Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc. — which together controlled 63% of the NAND market and almost half of DRAM sales in 2006 — have been backing off NAND production since 4Q06 once DRAM profit margins surpassed NAND flash margins, which has significantly reduced excess supply and surplus inventory, “leading to a more balanced supply/demand situation and firmer pricing in the market.” Meanwhile, Kim thinks OEMs will look to secure large volumes NAND flash at current “fire-sale prices,” in anticipation of possible shortages in 2H07.

Despite the words of optimism about the NAND market, “we are not unduly optimistic regarding the near-term market conditions for suppliers,” Kim cautioned, adding that iSuppli “is not considering an upgrade to ‘positive’ at this time.”

While the NAND market appears ready to bounce back, the DRAM market is also seeing prices drop amid rising production and a traditionally slow 1Q07, Kim noted. He thinks Korean DRAM suppliers will not shift capacity back to NAND in 2Q because DRAM margins are still better and should remain so through the year. Hynix, in particular, will stay away from NAND because it doesn’t have the cost-efficiency of a 300mm NAND fab like its competitors, Kim pointed out, adding that Hynix will likely delay the release of 16Gbit NAND flash devices until 2Q. A recent partnership with SanDisk should help Hynix, though, with rights to future technologies and additional fab investments.


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