SAN FRANCISCO, USA: SanDisk Corp's Eli Harari watches Apple, Google and others battle for dominance in smartphones knowing that flash memory could win big, as demand could potentially outpace supply in coming months.

Robust consumer demand for smartphones could lead to a shortage of memory chips in the second half of this year, he said, giving him confidence that the decline in memory chip prices will remain benign and at a rate that is slower than his projected 30-40 percent decline in costs.

Apple Inc's iPhone, phones running Google Inc's Android software, as well as those made by Microsoft Corp, Nokia Corp, and Research in Motion all need embedded flash memory to let customers store emails and music, run software applications and snap pictures.

SanDisk, the No. 1 maker of flash memory cards, does not disclose its customers, but says it sells its NAND flash to the top 10 handset makers.

"On the smartphone, there has been a dramatic increase in sales and the only way to store content is on flash memory and that has driven up demand," Harari told the Reuters Global Technology Summit on Wednesday.

"Smartphones will be the new PC basically. (They) are computers in disguise," said Harari, who founded SanDisk in 1988 and has served as chief executive since its inception. "We basically sell the ammunition. There is a war going on and we sell the bullets."

South Korean firms Samsung Electronics and LG Electronics, the world's No. 2 and No. 3 handset vendors respectively, are planning to sharply increase their smartphone sales, while new players like Huawei and Dell Inc are strengthening their offerings.

Last month, Research firm Strategy Analytics said the smartphone market grew 30 percent year-on-year in the December quarter to 53 million phones.

The memory manufacturer also expects to take advantage of burgeoning consumer demand for tablet-style portable devices similar to Apple Inc's iPad, Harari said.

SanDisk Corp Chief Executive Eli Harari said on Wednesday that the industry's balance between demand and supply is healthy, a welcome change from the early part of 2009, when the NAND industry was stung by oversupply and weaker demand for consumer electronics.

But a product shortage could arise in the second half of the year, before new plants built by chip makers have a chance to come online.

The flash memory maker also sees pricing as "benign" for NAND memory chips and expects declines in prices to be less than the projected 30 percent to 40 percent drop in the company's costs this year, Harari told the Reuters Global Technology Summit.

"The demand-supply balance which has been very healthy, I would say in the last 3 to 4 quarters, we would expect it to continue to be healthy -- very healthy -- for the rest of this year and into next year," Harari said.

"There could be shortages of supply .... There's a very large number of tablet computers coming on the market, and Android phones are exploding in terms of new models coming out," he said, referring to Google Inc's smartphone operating system.

SanDisk, whose rivals include Samsung Electronics Co Ltd, Toshiba Corp and Hynix Semiconductor Inc, boosted its outlook last month as demand for mobile phones that play music and videos spurred sales of flash memory.

Looking ahead, Harari said its solid-state drives -- flash-memory based drives said to consume less energy than traditional hard drives -- are still too pricey to generate an acceptable profit margin for SanDisk in the consumer market.

"The market is there, already but relatively small. It will accelerate in 2011 -- It will become much more substantial by 2012," he said.