 Fast Growing Bit-Demand & Falling Capex
A fast year full of action is what we look back upon here on the NAND flash spot market in Hong Kong, the place where USB flash drive suppliers and manufacturers of SSD memory, SD cards and mobile devices that use flash memory are busy trading wholesale volumes of NAND flash memory chips.
Let's look into some of the milestones of 2009's core price developments, sum up the current NAND flash market situation and give you our general forecast for NAND flash memory prices and market trends in 2010...
As being reported by several media sources, the NAND flash memory market is about to undergo a significant shift it’s core supply/demand balance. As the folks over at Semiconductor International put it: "Bit growth is escalating wildly, yet this does not translate to great increases in capital spending."
On the spot-market, where weekly or daily NAND flash price updates for wholesale volumes of several hundred thousands units are setting indicators for wholesale prices further downstream, NAND traders are much at the mercy of the supply situation and wafer output capacities of a few main upstream semiconductor houses: Samsung, Hynix, Toshiba, Intel and Micron. The big five within NAND flash.
As these five corporations have been quite busy fighting their own battles during the year: a combination drastic reduction in capital spending, closure of NAND flash production plants as well as significant reductions for R&D combined with little new investments in semiconductor technology and new development all lead to both highly volatile NAND flash price trends, as well as frequent change of brand supply for the various capacities with shortages for the lower memory capacities up to 8GB and 16GB:
Several main orders from Apple, strategically spread out between Hynix, Toshiba and Micron lead to supply shortages of NAND flash memory on several occasions throughout 2009, and they immediately had drastic and direct effects on NAND flash wholesale prices and the entire spot-market.
This works in a very easy way: every time a supplier gets in a mega order from Apple worth several hundred millions US$, they’ll use all - or most - of their resources and NAND wafer output capacities to fulfill this major order.
Understandably enough, as a purchase agreement from Apple for such amounts is certainly no piece of cake and does require some major efforts.
Also, the general tendency is obviously that the bigger grow bigger and for the smaller players it’s not easy to keep up with especially R&D, which is traditionally the most cost intensive part of the semiconductor industry. Samsung stands out as one of the main players and has a much better competitive position than many of other NAND flash manufacturers:
Samsung has managed to further consolidate massive market shares throughout the year, backed also by their own demand for NAND flash memory by their innovative mobile handsets and smart-phones, and is best buy supplier for several of the mid-capacities of NAND flash memory chips that are frequently used for USB flash drives and SD cards.
For these main NAND flash core producers Samsung, Hynix, Intel and Micron the NAND flash price increases of last year has had a huge positive impact on their financial results:
Recovery of the NAND flash market and recovery of the semiconductor industry are key phrases that are used a lot, meaning basically that Samsung, Intel and even some downstream USB flash drive manufacturers such as SanDisk or Transcend are generating a stronger cash flow and more revenues as NAND flash memory is not sold under value anymore, as in the pre-2009 area where overcapacity caused supply driven market conditions.
Now Samsung and Intel are again seeing growing revenues, and as NAND bit volume demand is projected to keep on climbing throughout the next few years, while at the same time supply will remain tight due to significant reductions in NAND flash memory capital spendings, lowered outputs, it’s likely that these players will take their time surfing the NAND price recovery to their advantage while further securing market position in the highly competitive semiconductor industry.
With a constant upwards price trend for all NAND flash memory throughout the last year being the main market dynamic element thriving the market, this year has not been so easy to master for many among the players on the NAND flash spot-market.
Smaller players do not have access to the same resources and are easily outplayed by the the big guys. For many of mid-sized USB flash drive manufactures and wholesalers of NAND flash and USB memory sticks it has been very tricky to deal with price increases and sudden market movements.
What impact has this last year of constant price increases for NAND flash memory had for USB flash drive manufacturers and USB memory suppliers?
This years NAND flash price increase has had a few positive effects on the downstream product quality:
As a reaction to the volatile market, USB flash memory vendors have been forced to completely flush their inventories on several occasions, and as prices go up this is squeezing out the margins for supplier of 2nd grade NAND flash memory. This leads to a situation where non-original chips are priced close to original A-grade NAND memory and thus possess no real price advantage.
In the past two weeks we’ve seen a stabilizing price trend and easing up as demand eases off and we see more Hynix NAND flash coming back on the market, which leads to a lowering of prices by putting pressure on other players, especially Samsung, and by dominating entire capacity ranges.
Taiwan-based Supreme Electronics is reporting ample supplies of NAND flash memory from Samsung, who seems now to supply more memory chips also to the spot-market as order fulfillment for Apple is rolling up and overcapacity NAND from contractual orders are being released to the spot-market.
Sales of the new iPhone in China has not been as successful as expected, and future outlook of the device in the Middle Kingdom is still uncertain.
On the other side, the spot-market might strengthening it’s position towards the contractual market as the Chinese domestic market, where demand is starting to pick up and where sales volumes begin to take considerable dimensions.
What we see during the recent weeks is that NAND flash prices have been stabilizing and even easing up slightly. If this trend stays until end of January this might further flush out the lower sub-GB capacities, and consequently lead to the 16GB sliding down into position and 1GB becomes lowest capacity shipped.
The current ease might be of merely temporary nature, and further price increases can be expected early 2010 and prior to Chinese New Year, when we’ll see more clearly what the end-of-year sales brought in and also first market expectations for 2010 can be better assessed.
Most of Shenzhen’s USB flash drive suppliers are not restocking for the end of the year sales anymore, and prepare to flush inventories towards the new year, as most flash memory wholesale traders have already prepared their inventory for the upcoming end-of-year holidays.
Many of those who originally wanted to restock are now gambling on further price drops at the end of the year, or choose to flush out inventories completely and up before Chinese New Year.
USB flash drive manufacturers and NAND flash wholesale traders seem currently to prepare for further uptrends on the NAND flash market throughout 2010, and the general assumption is that NAND flash shortages will continue up until 2014, when new technology is expected to replace NAND flash with even more efficient memory.
As the core force behind this is a strong grow in demand, which is mainly based on the strong growth of shipped units of smartphones, mobile phones and other portable computing devices such as netbooks, MP4 and MP5 players. These devices all make usage of the advantages of SSD memory and manufacturers of these devices are the main NAND flash wholesale customers.
Here we’ll also find some of the more serious players, such as Apple and also Samsung themselves, who make a great influence on the global NAND flash price and market trends by their substantial contractual NAND flash purchases.
One of the main reasons that Samsung stands out as a clear winner after some highly competitive years - and fights - within the NAND flash and semiconductor industry is it’s based on own product lines:
Samsung mobile phones and smartphone devices are gaining market shares worldwide and a strong sales of these devices enables Samsung to build up technology advantages and growing market shares by producing NAND flash memory chips for their own products.
Just imagine: what if Apple would manufacture semiconductors....
Capex -
capital expenditure - is the key indicator of success in the investment intense world of NAND flash memory and semiconductor technology.
And who knows, maybe one day we’ll see new players enter the world of few - namely only the 3 major corporations Samsung, Intel and TSMC and as reported by the folks at Semiconductor International who tell us about the IC Insights: Only Three Companies in Billion Dollar Capex Club.
 High Capex Spending for R&D
Due to the high entrance fee that is not very likely, setting most current market forecasts for Samsung on strong growth and further market consolidation, with Intel & Micron as the main US influence in the industry.
Hynix seems to be back on the spot-market again, currently dominating the lower capacities with high-quality NAND flash memory to the markets best prices, and far below sales price of corresponding NAND flash from Samsung.
General prediction is a slight ease, especially on lower capacities and up to Chinese New Year, followed by new price increases as new shortages driven by smartphone growth and contractual purchases might very will affect also NAND flash memory prices and wholesale price for USB flash drives throughout the first to quarters of 2010.
Interesting of course also to see how Apple is going to act at the start of the new year, and how product lines are taking up and if worldwide sales can be sustained through securing market shares in emerging markets and developing economies, which in many cases still remain open.
Already starting to face growing complaints by the semiconductor industry, saying that Apple is manipulating NAND flash memory prices through its “questionable” purchase strategies. Possible re-alliances between core players could certainly also change some of the rules of the general demand/supply balance and a re-shuffle part of the NAND flash market dynamics.
As always, we at MemoTrek are following every move of the NAND flash market carefully and we react swiftly on new trends and tendencies, always striving to act on your best behalf and to your benefit:
Because of our market expertise and experience from the NAND flash industry we help you to ensure high quality to today’s markets lowest prices.
More and more customers worldwide entrust MemoTrek when purchasing wholesale volumes of customized USB flash drives and branded USB sticks:
And this growing customer base enables us to improve our service levels, our high product quality and our market competitiveness make us your ideal long-term partner for all your USB flash drive needs.
For questions or more information please feel free to contact our Sales Team now!
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