USA: Amid troubling signs of order reductions and weakness in consumer spending, iSuppli Corp. is cutting its outlook for global NAND flash revenue growth in 2008 to the single digit percentage range, down from our previous outlook of a 27 percent rise.

Global NAND flash revenue is set to rise marginally in 2008, up from $13.9 billion in 2007. NAND flash is used heavily in consumer-electronics applications — including flash storage cards, MP3 players and USB flash drives — that are driven by retail sales to consumers. With consumer confidence taking a dive due to the US subprime mortgage crisis, the NAND market outlook has diminished considerably in 2008.

"Unless the economy recovers vigorously later this year, last year's DRAM market disaster could be repeated in NAND this year," said Nam Hyung Kim, director and chief analyst, memory, for iSuppli.

In an early warning sign of consumer weakness, Apple Inc. has slashed its 2008 NAND order forecast significantly and has informed suppliers that its demand growth will slow in 2008 compared to 2007, according to iSuppli sources. This is likely to have a huge impact on the NAND market.

With its extremely popular flash-memory based iPods, Apple was the world's third largest OEM buyer of NAND flash memory in 2007, with purchases of $1.2 billion, representing 13.1 percent of the global market, according to iSuppli's OEM Semiconductor Spend Analysis tool. Before word of Apple's warning, iSuppli had predicted the company's NAND flash purchases would rise by 32.2 percent this year, helping drive significant market growth.

On the supply side, slower NAND demand will have a major impact on suppliers' financial results. Capital spending on NAND production will rise by more than 20 percent this year, ensuring easy availability of parts. This will cause prices to decrease. iSuppli believes that NAND prices already are below suppliers' fully loaded costs.

"In light of these factors, NAND suppliers are likely to go into the red in the first quarter, and are not likely to recover in the second," Kim warned.

Fourth-quarter warning
The fourth quarter of 2007 served as a preview of the poor NAND market conditions to come. Global NAND revenue in the fourth quarter declined to $4.1 billion, down 2.4 percent from $4.2 billion in the third quarter. Of the Top-8 NAND suppliers, six suffered sequential declines in revenue.

The only companies to achieve a sequential gain in revenue were Intel Corp. and Micron Technology Inc., which produce NAND through their joint venture, IM Flash Technologies (IMFT). The two companies also led growth for the entire year of 2007, with revenue rising by 139.2 percent for Micron and a whopping 269.6 percent for Intel. IMFT achieved explosive growth in unit production that offset the impact of falling prices.

A year to remember
As 2008 shapes up to be a poor year for NAND, suppliers are likely to look back at 2007 with nostalgia. In 2007, NAND flash memory revenue grew by 12.5 percent to reach $13.9 billion. Six of the Top-8 suppliers achieved revenue growth for the year. Along with Intel and Micron, Toshiba and STMicroelectronics managed to outgrow the market and gain share.

However, the major South Korean suppliers, Samsung Electronics Co. Ltd. and Hynix Semiconductor Inc., both lost share as their growth underperformed the market.

Hoping for a DRAM turnaround
If matters weren't bad enough for NAND suppliers, the DRAM market offers no solace. Some of the memory suppliers, including Samsung, Hynix and Micron, are capable of shifting production to DRAM when NAND conditions worsen.

However, iSuppli predicts a poor year for DRAM as well, with revenue increasing by only 4 percent in 2008. The only hope for the NAND industry is a quick recovery in pricing of DRAM. iSuppli doesn't foresee this occurring within the next few months.