iSuppli upgrades NAND flash memory market assessment
The news is good but not great for suppliers of NAND-type flash memory, who have been battered by nearly six months of severe price erosion: iSuppli Corp. has upgraded its rating of near-term market conditions.
iSuppli now is rating market conditions for NAND suppliers as ³neutral,² up from the ³negative² assessment that we have maintained since the first week of Oct 2006. It was only recently that iSuppli observed circumstances for suppliers were the worst in the history of the market. While the brutal conditions are persisting, the turning point is near.
iSuppli¹s NAND Momentum Indicator, a metric that tracks various factors that determine market status, moved into positive territory last week, the first time this has happened since Nov 2006.
³The major factor behind iSuppli¹s upgrade is a slowing in the growth of supply, which is helping to mitigate the severe price erosion that has been the dominant driver of market conditions over the past half year,² said Nam Hyung Kim, director and principal analyst at iSuppli. ³The South Korean suppliers, Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc., are decelerating their NAND production growth, leading to a more balanced supply/demand situation and firmer pricing in the market.²
These companies, which controlled 63 percent of the NAND market and 45 percent of DRAM sales last year, have been shifting their NAND capacity to DRAM, Kim noted. The South Korean manufacturers started this process in the fourth quarter of 2006, when their operating profit margins for DRAM surpassed those for NAND flash. Although downward pricing pressure persists, Kim said he believes this reduction in NAND supply growth is causing a significant decline of excess supply and surplus inventory in the supply chain.
On the demand side, OEMs are expected to buy more NAND flash as they attempt to secure large volumes at present fire-sale prices. They will do this in anticipation of a potential shortage in the second half of 2007, which should lead to a slowing in the rate of price erosion.
This development confirms iSuppli¹s previous prediction that the NAND recovery would take place earlier than that for the DRAM market this year. In general, the NAND market appears to be moving toward a more balanced supply/demand situation. In contrast, rising DRAM production from the South Korean suppliers‹combined with the traditionally slow season in the first quarter‹is having a deleterious impact on DRAM prices.
While iSuppli has upgraded its rating for NAND, we are not unduly optimistic regarding the near-term market conditions for suppliers. In light of this, iSuppli is not considering an upgrade to ³positive² at this time.
iSuppli also doesn¹t expect that Korean DRAM suppliers will shift their capacity back to NAND in the second quarter, since NAND margins are worse than those for DRAM. iSuppli believes that DRAM margins will remain higher than those for NAND this year.
This is particularly the case for Hynix, which has lower NAND margins than its competition due to its lack of a 300mm NAND fab. Without such an advanced fab, Hynix¹s introduction of its first 16Gbit NAND flash is likely to be delayed compared to rivals Samsung and Toshiba Corp., which plan to introduce 16Gbit parts in the second quarter. Reflecting its challenges, Hynix recently announced a partnership with flash-card maker SanDisk.
iSuppli considers this deal to be a positive for both SanDisk and Hynix. SanDisk has secured additional royalty income and capacity, while Hynix has obtained rights to future technologies and will receive additional fab investments.
iSuppli remains cautious about market conditions and will wait and see if the current momentum is sustainable during the second quarter.
