Prices of NAND flash memory -- the stuff used in Apple's (NASDAQ:AAPL) iPod nano -- have been clipped by 50% so far this year, but market research firms Gartner and iSuppli believe that the worst is over for the NAND flash market.
iSuppli says that inventories are declining and that the low pricing will cause people to toss a flash memory card or two in their shopping carts next to the German chocolate cake and potato chips while stocking up at Wal-Mart (NYSE:WMT). iSuppli does caution that high energy prices and rising interest rates could dampen demand somewhat. Presumably, some people will choose to pay the rent or buy gas rather than buy flash memory cards.
Gartner, meanwhile, issued a much more bullish forecast. Gartner expects Apple to introduce a new flash-based iPod later this year with a capacity of 10 to 12 gigabytes. This is a lot higher capacity than the current top-of-the-line iPod nano at four gigabytes. Gartner says that a new iPod with such a high storage capacity will drive the NAND flash market into shortage, similar to what happened in 2005.
Naturally, not everyone feels so good about the prospects of the NAND flash market. NAND flash production is expected to triple this year compared with 2005, and, as yet, there's no killer app to suck up all the extra memory chips (the new iPod will have to be it).
Unfortunately, a bust in the NAND market -- if it happens -- would extend beyond NAND flash manufacturers like SanDisk (NASDAQ:SNDK), Samsung, Toshiba, and new entrant Micron (NASDAQ:MU). Chip equipment makers that have enjoyed large sales of equipment to flash memory fabs would also be hurt, since additional capacity expansion would likely slow down. For example, about a third of June quarter orders at Lam Research (NASDAQ:LRCX) are expected to be from flash customers. At Applied Materials (NASDAQ:AMAT), the total was 24% in the second quarter.
NAND flash is making its way into many new devices, some of which I believe will greatly increase demand for flash memory over time, but probably not fast enough to help out this year. So, for now, it looks to me (and Gartner, apparently) that the world's NAND flash makers are counting on one product from one company to rush out and save them from the NAND flash flood they've created.
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Fool contributor Dan Bloom owns shares of Micron. Dan welcomes your comments. The Motley Fool has an ironclad disclosure policy.
