Flash! Prices collapse for memory devices!

by Jeff Dorsch, February 27th, 2007, 7:00 am

Price declines for semiconductor parts are never a big surprise. In an industry where product features and technology change so rapidly, many devices have a short shelf-life at a certain price point. The laws of supply and demand take hold, and prices naturally follow.

NAND flash memory is a case in point. This versatile, non-volatile memory device type is designed into many products, such as Apple’s iPod nano and iPod shuffle MP3 music players, mobile handsets, USB flash drives, digital still cameras, and Sony’s PlayStation Portable.

High demand for NAND flash memory in recent years has driven suppliers to switch their wafer fabrication plants (fabs) to making NAND flash memory or to build new fabs for that purpose. The market grew from $10.8B in 2005 to $16.8B in 2006, according to iSuppli. IC Insights sees the market growing 31% a year through 2010, to more than $33B.

So, it wasn’t unexpected when market forecasters predicted oversupply would cause the price of NAND flash memory to fall, as more product flooded into the market. What was a surprise was the extent of that decline: 65% in 2007. Yes, that’s right – a price drop of two-thirds over the span of 12 months. If only that would happen to gasoline prices! (Flash – this just in: Prices for NAND flash memory have fallen 50% in just two months.)

Ultimately, this will be a boon to consumers, as the prices of products based on NAND flash memory will inevitably drop. On the supply side, it’s a shock to the system, of course. Just ask the 250 employees of SanDisk who are about to lose their jobs as a result. The stock of Micron Technology took a small hit as a result of the news, but the pain is bound to spread, especially if prices continue their freefall. Some of those new fabs will be put on hold or switched to making devices with more price stability, such as dynamic random-access memories (DRAMs).

That would be richly ironic, as the DRAM market has a long history of pricing jitters, and many semiconductor companies have given up on DRAMs because of the uncertainty in making a profit on the parts.