Analyst: NAND flash meltdown spills into 2009

Oct. 31, 2008 – The high-flying NAND flash memory market came crashing back down to earth in 2008, and it looks like it won’t pick itself up until after 2009 — and in this scenario, consumer are the only winners, according to new analysis from iSuppli.

Once a reliable triple-digit growth sector (and enjoying ~62% Y-Y growth as recently as 2005), NAND flash will suffer a -14% this year to ~$12B, vs. an initially anticipated -3% decline and the market’s first-ever decline. In 2009 the market is seen dropping another -15%, vs. expectations of -12%.

As with most things these days, lousy economic conditions can be blamed, though somewhat less directly. “Unlike other memories, which depend more on non-consumer/non-retail products, NAND flash is bearing the brunt of the challenging retail conditions,” said Nam Hyung Kim, chief analyst at iSuppli, in a statement. In a downturn, retail stores — the target sellers of devices such as personal media players, storage cards, USB flash drives, etc., which make up 80% of NAND demand — wield even more bargaining power on pricing than usual. So, with sales slipping and inventories piling up, NAND suppliers are forced to cut prices to keep product moving.

“Combined with uncertain global economic conditions and a lack of killer applications, the NAND flash memory business is facing a triple whammy,” Kim stated.

Beyond macroeconomic pressures, NAND flash suppliers are also suffering through a decline in “demand elasticity,” Kim said. At the moment, consumers feel they have plenty of memory capacity in their flash storage cards and USB flash drives, so they’re not upgrading and price cuts aren’t as tantalizing as they used to be, he added. (ASPs for 1GB equivalent NAND are seen dropping 62% in 2008, and another 50% in 2009.)

Unit shipment growth for NAND flash chips (1GB equivalent) still will be a very strong 126% this year, but that’s down from 179% in 2007 (and a five-year CAGR of 192%), and in 2009 it will unit growth is expected to sink to 71%. But even these declines won’t be enough to rebalance supply/demand, Kim warns.

Mid-term NAND market forecast, sales (US $B) and bit growth (%). (Source: iSuppli)
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“All in all, the only winners in this market are and will be consumers who have access to fire-sale prices for these flash storage devices due to those issues,” Kim writes.

The slowing unit growth in the NAND flash sector also will have an impact on semiconductor capital equipment providers, as the sector is seen cutting its spending by 38% next year, Kim notes.


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