Demand for flash memory drops along with product shipments

Computerworld - A decreased demand for NAND flash-related applications has led DRAMeXchange Technology Inc. and other analysts to lower their outlook for 2009 NAND flash chip sales.

DRAMeXchange trimmed its forecast for higher chip sales from 108.2% to 81%. The research firm expects the market to reach 1.16 billion units sold in 2009, a decrease of 5.4% over 2008.

While the lowered sales expectations may not appear dramatic, over the past three years NAND flash sales grew 175%, 151% and 121% in 2006, 2007 and 2008, respectively. iSuppli Corp. also forecasted a huge drop in NAND flash units shipped - from a 132% year over year increase in 2008 to a 65% increase in 2009. So 2009 will be the first year in recent memory that the market will likely see only double-digit growth.

Gregory Wong, an analyst at Forward Insights, said NAND flash chip sales were down 20.1% between 2007 and 2008, with 12.4 billion flash chips sold last year, compared with 15.8 billion in 2007. He doesn't expect those figures to improve for 2009.

While Jan. 26 marks the beginning of the Chinese Year of the Ox, Wong said Asian workers will have little to be bullish about when it comes to the technology marketplace. "The layoffs in Asia will occur just before Chinese New Year. This way the companies will avoid paying year-end bonuses," Wong said. "If those rumors are true, there will be a lot of people let go."

Wong said widespread layoffs will hit NAND flash chip production and sales negatively.

Both Toshiba and SanDisk -- two top producers of NAND flash chips -- shut down their facilities for 13 days after Dec. 31 and said they would run manufacturing facilities at 70% capacity until flash memory demand increases.

"I think Samsung will take some days off too," said Wong, who blamed poor sales on an overstock of flash memory cards. "There's eight to nine weeks of flash memory card inventory out there."

DRAMeXchange expects flash chip suppliers to reduce production by 10% between the fourth quarter of 2008 and the first quarter of 2009. It blamed the drop in flash memory sales on lackluster performance of products such as mobile phones and MP3 players. The 2009 forecast for mobile phone shipments is about 1.16 billion units, 5.4% lower than in 2008. For example, Nokia said its shipment of mobile phones declined 5% in 2008. Samsung and LG have also revised their 2008 mobile phone shipment forecasts down by 8% and 12%, respectively.

iSuppli forecasted a 17% drop in NAND flash revenue this year over last, from $12 billion to $10 billion. It predicted that sales won't pick up again until 2010, when revenue is expected to jump up by 16% to $11.5 billion. Solid-state disk (SSD) drives are also expected to see little growth in 2009 because of their high price and "reliability issues," DRAMeXchange reported. "Most [laptops] still mainly adopt hard disk drives as its major storage device. The penetration rate of SSD in the low cost PC market will be lower than 10% in 2009," the company said.

Digital camera shipments are forecast to hit 144 million units in 2009, an annual growth rate of about 10%, compared with 21.3% in 2007 and 18.6% in 2008.

Demand for MP3 portable multimedia players is also slowing, leading DRAMeXchange to forecast a drop in shipments ranging from 2.4% to 9.8% compared with 2008 levels. The firm said the drop is related to new mobile phone models that feature a music player function.

Oversupply in the DRAM chip market also pushed prices down 75% in 2008, from a high of $2.29 to 58 cents, and the industry lost more than $8 billion between the first quarter of 2008 and the third quarter, according to DRAMeXchange.

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