EL SEGUNDO, USA: Once one of the fastest-growing segments of the global semiconductor industry, the NAND-type flash memory market has been stricken by weakening consumer spending, causing revenue to decline in both 2008 and 2009, according to iSuppli Corp.

iSuppli's revised forecast predicts that worldwide NAND flash memory revenue will fall by 14 percent 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 percent. iSuppli's previous forecast, issued in the third quarter, called for a 3 percent decline in 2008 and 12 percent growth in 2009.

The year 2008 will mark the first time that worldwide NAND flash revenue has declined on an annual basis.

This represents a major reversal of fortune for a product whose revenue routinely expanded by triple-digit percentages in the late 1990s and early 2000s, and that as recently as 2005 generated 62.2 percent annual growth.

The NAND market is being impacted by several factors.

The biggest challenge is the nature of the applications that drive sales of NAND flash memory. Applications including Personal Media Players (PMPs), flash memory storage cards and USB flash drives account for almost 80 percent of total NAND chip demand.

These products mostly are sold in retail stores, which have significant bargaining power on pricing, especially during a downturn in the market. With the challenging sales situation and the inventory overhang among OEM customers, the NAND chip suppliers have no choice but to cut chip prices to increase their sales.

"Unlike other memories, which depend more on non-consumer/non-retail products, NAND flash is bearing the brunt of the challenging retail conditions,” said Nam Hyung Kim, chief analyst at iSuppli. "Combined with uncertain global economic conditions and a lack of killer applications, the NAND flash memory 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 added.

Unit shipments of 1Gbyte equivalent-density NAND chips are expected to rise by 126 percent in 2008. While this is down from 179 percent in 2007, it still represents explosive unit growth, which is resulting in oversupply. In 2009, unit growth will decline to 71 percent. Over the past five years, the market has averaged a 192 percent increase annually.

This represents a significant decline in the growth rate next year. However, it is not sufficient to offset the challenging demand situation and generate a rise in pricing and supplier revenue.

For this year, the Average Selling Price (ASP) of 1Gbyte equivalent of NAND is expected to drop by 62 percent, followed by a 50 percent decline in 2009.

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 percent in 2009.

All in all, the only winners in this market are and will be consumers who have access to fire-sale prices for these flash storage devices due to those issues.

At this time, iSuppli is reiterating its "negative” rating for near-term market conditions for suppliers.