NAND faces historic downturn in 2008, 2009, iSuppli reports

iSuppli expects decreasing unit growth in the NAND flash market potentially will impact the semiconductor capital equipment industry.

By Suzanne Deffree, Managing Editor -- Electronic News, 10/31/2008

When the mighty fall, they fall hard. And they don't fall alone.

Once one of the fastest-growing segments in the semiconductor industry, the NAND flash-memory market has been hit by weakening consumer spending, causing revenue to decline in both 2008 and 2009, according to iSuppli Corp, which expects that NAND issues may hurt other semiconductor industries.

iSuppli projected worldwide NAND flash memory revenue will fall by 14% to the $12 billion level in 2008, down from $13.9 billion in 2007. In 2009, global NAND flash memory revenue will decline by another 15%, according to the research company's data.

The company's previous forecast, issued in Q3, called for a 3% decline in 2008 and 12% growth in 2009. Evidencing the now nearly year-long decline of the NAND market, iSuppli in April cut its original 2008 NAND revenue forecast by two-thirds to 9% on adjusted forecasts from NAND buyers. 

The 2008 decline is a historic one, said iSuppli, noting that this year will mark the first time that worldwide NAND-flash revenue has fallen on an annual basis.

The research company said the fall represents "a major reversal of fortune" for a product segment in which revenue routinely expanded by triple-digit percentages in the late 1990s and early 2000s, and that as recently as 2005 generated 62.2% annual growth.

NAND sales, which are driven mostly by consumer products like PMPs (personal media players), flash storage cards, and USB flash drives, now face crumbling consumer confidence arising from the global economic situation. With the challenging sales situation and the inventory overhang among OEM customers, NAND chip suppliers have cut chip prices to increase their sales, iSuppli said.

"Unlike other memories, which depend more on nonconsumer/nonretail products, NAND flash is bearing the brunt of the challenging retail conditions," said Nam Hyung Kim, chief analyst at iSuppli (pictured), in a statement today. "Combined with uncertain global economic conditions and a lack of killer applications, the NAND business is facing a triple whammy.

"Beyond the macroeconomic and structural challenges, the NAND flash industry also is experiencing the fundamental challenge of declining demand elasticity. With sufficient capacity in their existing flash storage cards and USB flash drives, consumers don't need to upgrade their products and are not as sensitive to price declines as they used to be," Kim said. 

Oversupply, falling ASPs issues could harm capital equipment spending

According to iSuppli estimates, unit shipments of 1-Gbyte-equivalent NAND chips are expected to rise by 126% in 2008, down from 179% in 2007 but still representing tremendous unit growth. That growth, however, has resulted in oversupply. In 2009, unit growth will decline to 71%, iSuppli projected, noting that over the past five years, the market has averaged a 192% increase annually.

On the oversupply, ASPs (average selling price) of 1-Gbyte-equivalent NAND chips are expected to drop by 62% in 2008, followed by a 50% decline in 2009, the research company estimated.

"Decreasing unit growth in the NAND-flash market potentially will impact the semiconductor capital equipment industry. The NAND flash suppliers have been increasing their capital spending to increase their capacities. However, industry spending will be reduced significantly by 38% in 2009," iSuppli said. 

Indeed, Micron Technology in early October announced plans to reduce its global workforce by approximately 15% over the next two years, most of which will be in the company's Boise, Idaho, headquarters, as part of a NAND operation shutdown. Micron announced the plans after reporting a $1.6 billion loss for fiscal 2008.

Further, SanDisk this month sold its partner Toshiba additional NAND capacity in the two companies' joint ventures, Flash Partners and Flash Alliance. Milpitas, Calif-based SanDisk did so as it faced a sizable Q3 loss and coming Q4 layoffs.