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In cyclical memory arena, NAND turns cold in a flash

Posted by iNext - 2006-04-06

San Jose, Calif. -- Not long ago, the NAND flash memory market was red-hot, while DRAMs were cold and in the tank. But suddenly, the cyclical memory markets have taken a surprising and unexpected turn amid a slowdown in MP3 player sales, PC software delays and other factors.

In a major turn of events, iSuppli Corp. (El Segundo, Calif.) last week cut its forecast for NAND-based flash memory in 2006, but raised its outlook for DRAMs--despite Microsoft Corp.'s recent announcement that its next-generation operating system, dubbed Vista, was being delayed.

But without a doubt, the once-hot NAND flash market has been turned upside down. Now vendors face an oversupply situation while product prices have fallen as much as 63 percent since the beginning of the year, according to the DRAMeXchange, a memory clearinghouse.

Citing a slowdown in the MP3 player market--including Apple Computer Inc.'s popular iPod product--iSuppli cut its NAND flash market revenue forecast to $13.8 billion this year, down from its previous prediction of $16 billion. While growth will fall short of iSuppli's initial forecast of a 49 percent expansion, the global NAND market still will rise by 28 percent in 2006, up from $10.7 billion in 2005, according to the research firm.

In contrast, worldwide DRAM revenue is expected to rise to $26.4 billion in 2006, up 6.2 percent from $24.8 billion in 2005. Analysts at iSuppli previously expected a 5 percent contraction in DRAM revenue for the year.

Overall, the NAND flash turnabout took analysts by surprise. "Most NAND analysts, including me, predicated oversupply in the first quarter, but I didn't expect that severe a price drop in the market," said Nam Hyung Kim, principal analyst with iSuppli.

Going forward, Kim's outlook for NAND flash is mixed, but he noted that the price declines are expected to deaccelerate. "I'm pessimistic in the second quarter," he said, "but I believe that NAND prices will fall a little slower throughout the year."

On a quarter-by-quarter basis, Kim said that NAND prices are expected to fall by 19 percent in the second quarter, 16 percent in the third quarter and 14 percent in the fourth quarter. Overall, he expects a 55 percent decline in average selling prices (ASPs) for NAND flash in 2006, which is about the same price drop as in 2005.

For DRAMs, overall ASPs are expected to fall by 30 percent in 2006, compared with 40 percent in 2005, according to Kim. Prices are expected to fall by 14 percent in the second quarter and another 14 percent in the third, and then to jump by 10 percent in the fourth quarter, he said.

Others have a slightly different view. "While the NAND flash spot prices dropped considerably since the beginning of the year," said Joseph Unsworth, an analyst with Gartner Dataquest Inc., in an e-mail newsletter, "DRAM spot prices have done the opposite and remained relatively firm." He added, "However, Gartner Dataquest projects that the NAND market will strengthen, and the DRAM market will soften, in the second half of the year; spot prices will provide an early indication when this begins."

Still to be seen, however, is what impact the delay of Microsoft's Vista product will have on the marketplace. Some believe the delay will have a negative impact on PC sales for 2006. Still others, including memory giant Samsung Electronics Co. Ltd., disagree and see scant effect on PC and memory sales.

"Semico's opinion is in line with Samsung's statement for several reasons," said Bob Merritt, an analyst with Semico Research Corp. "The first reason is that the amount of memory consumed by PCs is declining as a percentage of the total memory shipped."

There are other factors as well. "Another reason why the delay in the release of Vista has limited impact on memory consumption is that market release of a new operating system no longer generates the same level of anticipation as was common in earlier stages of PC evolution," Merritt said. "At the current level of maturity, the percentage of end users that look forward with that same high level of expectation to acquiring a new PC operating system has begun to decline."

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