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Few worries over impending NAND flash shortage

Proven coping measures implemented in the past are keeping suppliers upbeat. These include shorter price validity periods and extended lead times.

Projections of a NAND flash memory shortage that could happen in H2 2010 are not causing China's electronic makers to lose sleep. After years of coping with flash memory price and supply fluctuation, many export-oriented suppliers are confident they have seen it all.

Few worries over impending NAND flash shortage
MP3 sunglasses model LY-10M from Shenzhen Longzhiyuan incorporates 512MB to 4GB NAND flash memory.

High-density memory almost doubled in cost from January to December 2009. Prices are still inching up, although those for 16Gb and lower-capacity units are going down gradually.

The rising demand for smartphones, MP3 players and other electronic devices, including Apple's iPod, iPhone and iPad, is pressuring NAND flash suppliers to boost output. Yet market research institutes such as iSuppli expect that memory makers would not be able to fill the gap between supply and demand, resulting in shortage and price hikes this year.

The bleak projection, especially for H2 2010, is not dampening the overall rosy outlook of many electronic manufacturers in China. These companies are ready to fall back on various coping tactics they have developed over the years in managing the NAND flash supply problem.

For one, many exporters avoid stocking memory parts. Purchases are typically made once product orders have been confirmed. Stocks are kept to a minimum unless a price increase is imminent.

Quoting without the NAND flash cost has become a standard operating procedure for many businesses. The practice is less prevalent in products utilizing smaller parts, such as below 512Mb where prices are not as fickle.

Dongguan Synst Electronics Co. Ltd, a maker of mini-component audio systems, Internet radios and portable CD players, purchases memory components only when there are orders to reduce the potential risk.

For quotes that incorporate the NAND flash cost, the validity period has been shortened from one month to between seven and 14 days.

Shenzhen Weidiye Electronic Co. Ltd integrates 1 to 4GB flash memory in the HDD media players and car multimedia systems it manufactures. "The cost (of flash memory) is always unstable," sales manager Vivi Zhao said. The company immediately adjusts prices to reflect any major change.

Another strategy for avoiding flash memory risk is to remove it altogether. An increasing number of MP3 and portable media players, for instance, feature external storage through a USB port or memory card slot. Internal NAND flash is reduced to the minimum. The bundled memory card can be priced independently or sourced separately by the customer.

Dongguan Synst resorts to external flash memory storage to reduce the impact of price fluctuation and shortage on its production. For most of the company's products, 512MB is sufficient internal memory. It suggests external storage for customers who want larger capacity.

Shenzhen Longzhiyuan Technology Co. Ltd, a maker of eyewear video recorders, MP3 players and cameras, expects high-density flash memory chips to be 5 percent more expensive in the next six months. But there are no projections for either a curtailment in supply or a price hike for low-density chips.

Sales manager Ailin Zhang said delivery lead time would be extended in the event of a cost hike or short fall, but the minimum order requirement will remain the same. In times of severe price fluctuation or inventory deficit, the company builds up a flash memory stock whenever it deems necessary.

About 80 percent of Shenzhen Longzhiyuan's output is embedded with 4GB NAND flash memory, 10 percent incorporates 8GB versions and the rest employs 2 and 1GB models.

Heavy NAND flash users cornering supply

Apple is considered the single biggest consumer of NAND flash memory, taking up almost 20 percent of available supply.

Memory makers' preferential treatment for Apple and a few other high-profile customers is partially blamed for periodic NAND flash shortages. Their larger orders are often prioritized, leaving the rest of the market fighting over excess capacity. New product releases by Apple have overlapped frequently with NAND flash scarcity.

The appetite for flash memory varies among China's electronic manufacturers. Although a large number use NAND flash memory, a major segment only adopts low-density chips.

For instance, 32Gb and other high-density chips are mostly demanded by makers of SSDs, tablet PCs and high-end smartphones. Suppliers of flash drives, MP3 players, PMPs and other electronic devices mostly utilize 4 to 16Gb chips. They would incorporate a single chip or multiple chips with equivalent capacity, whichever makes more economic sense at the moment or as required by the customer.

Smartphone manufacturers utilize a 1 or 2Gb chip as internal NAND flash in addition to DDR RAM, oftentimes in multiple chip package. Even at this size, it would already be at least the third most-expensive part after the baseband processor and display panel. Low-cost flash memory cards with 4GB or higher capacity are typically bundled with the handset.

In tablet PCs, a total NAND flash of 32GB or higher would make it the second most expensive part after the LCD panel.

Suppliers of promotional items and toys such as children's cameras, on the other hand, mainly use low-density 16 to 512Mb NAND flash parts.

New techniques enabling lower production costs

Some technological developments in the flash memory manufacturing industry are actually encouraging for China's electronics industry. Although no new fabs are coming on line in 2010, some capacity expansion plans that were put on hold by the global recession are back on track.

The most notable development is the transition to sub-30nm processes, which is projected to bring about a significant cost reduction in the production cost of flash memory products.

Samsung announced it would begin 27nm NAND flash memory production in Q2 2010.

IM Flash, the joint venture between Intel and Micron, is set to begin mass production of 25nm flash memory chips in June 2010.

Hynix, the world's second-largest computer memory chipmaker, plans to shift from 30 to 26nm manufacturing process technology by Q3 2010. The modification would enable the company to double its NAND flash memory production capacity.

Another innovation that could also result in inexpensive flash memory is 3bit and 4bit/cell technology. As stability issues are further resolved, the denser chips are projected to replace conventional 2-bit/cell in most applications for NAND flash memory.

Toshiba began 3bit/cell mass production in 2009. There is a possibility that Intel and Micron would be mass producing 3bit/cell products using 25nm generation technology within 2010.

As for new plants, Toshiba has announced plans to build an $8.9 billion NAND flash wafer fab that would double its NAND production capacity. Manufacturing operations are targeted to begin in Q2 2011.

Note: This article "Few worries over impending NAND flash shortage" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.

All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.

Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

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