Samsung bid for SanDisk fails to stem NAND chip decline

A sluggish global demand for NAND chips keeps prices low

When Samsung Electronics offered to buy SanDisk Corp. for $5.85 billion early last week, some people in the industry hoped news of the possible takeover might stem a long-running decline in NAND flash memory chip prices.

That hasn't happened.

Instead, the price of NAND flash memory, which stores songs, photos and other data on iPods, iPhones and many other gadgets, has continued to fall.

NAND flash memory prices dropped an average of 1.3% last week to end at $1.33 per gigabyte, according to Joseph Unsworth, a memory chip analyst at Gartner Inc.

The problem is sluggish global demand for the chips, he said.

NAND flash memory has been in a steep downturn since the beginning of this year because the companies that make the chips built too many factories to compete with one another, and because of a slowdown in demand, according to market researcher iSuppli Corp.

Normally, signs of industry consolidation such as Samsung's bid for SanDisk can help prop up chip prices because the chips trade based on expectations for future pricing, not necessarily on today's industry situation.

The fact that NAND flash memory prices haven't increased indicates that many chip traders don't believe that a deal will go through for the two companies.

Indeed, last week analysts said that the deal would have a tough time being accepted by regulators, particularly the U.S. Justice Department. A Samsung acquisition of SanDisk would result in a company that controlled more than half the global output of NAND flash memory and would likely mean an increase in NAND flash memory prices.

Higher NAND flash prices would be bad news for anyone planning to buy a device with internal flash memory, or flash memory cards to use with a digital camera, digital music player or mobile phone.

Apple Inc., for example, is one of the world's largest NAND flash memory chip buyers, using the chips in its iPods and iPhones.

The company will purchase about $1.37 billion worth of NAND flash memory this year, the same amount as Sony, according to market researcher iSuppli.

Samsung is the world's largest NAND flash supplier, with a 42.3% share of global revenue in the second quarter, iSuppli says. Toshiba is the second-biggest supplier, with a 27.5% share of the market.

Copyright © 2008 IDG Communications, Inc.

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