Flash memory vendors slashing production, raising prices

NAND flash memory vendors responded to the slowing economy and weak consumer confidence by phasing out production of 200mm wafer manufacturing and cutting overall flash memory production to an industry-wide average of 70% in the first quarter of this year, according to analysts.

"In December, when I bought a USB stick, I paid [US]$22 for a 16GB stick -- $22! Now, you're seeing twice that price," said Gregory Wong, an analyst at Forward Insights. "Obviously, that was a Christmas special, so you have to take that into account, but pricing has gone up."

In January, decreased demand for NAND flash-related applications led DRAMeXchange Technology Inc. and other analysts to lower their outlook for 2009 NAND flash chip sales.

"In the end, [resellers] will have to accept some price increases, but that will be negative to the adoption of solid-state disks," Wong said.

DRAMeXchange trimmed its forecast for flash chip sales from an increase of 108.2% to an increase of 81%. The research firm expects the market to reach 1.16 billion units sold in 2009, a decrease of 5.4% over 2008. iSuppli predicted a 17% drop in NAND flash revenue this year compared to 2008, from $12 billion to $10 billion. It predicted that sales won't pick up again until 2010, when revenue is expected to jump up to $11.5 billion.

As a consequence of lowered production, NAND flash average selling prices have rebounded from a low of about 80 cents per gigabyte last quarter to about $1.60 per gigabyte this quarter, "and are currently close to covering their cash costs," Wong said.

"That means they're not covering fixed costs," he said. "From a financial perspective, they're still losing money. How sustainable is the price increase, and whether or not prices will come back down as some start turning production back up, remains to be seen. But, they may have to cut even further. When production is constrained, prices go up."

Among the companies that have cut flash memory chip production are Toshiba and SanDisk, which said they have slashed production by 30% and Hynix, which has cut production by 20%. Numonyx, PowerChip, Spansion and SMIC, have also cut production, but they make up less than 5% of the flash chip market, according to Wong. Samsung Electronics Co., Intel Corp. and Micron Technology Inc. have not cut production.

The supply side reductions and weak demand means the growth of capacity on flash chips through new technology will also slow this year.

"As the technology migration becomes more challenging with each new process generation, 2008 may have been the last year of triple-digit bit growth for the NAND flash industry," Wong said.

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