June 2012 brought on some fairly large changes in the memory card market. The retail market is expecting to see quite a few new ultrabooks, smartphones and tablets come out in time for Christmas. What do all of those products have in common? NAND flash memory. Overall, memory cards were fairly lethargic as a commodity in Q1-Q2, and with that, NAND pricing began to flatten. As a result, memory card pricing has also flattened.Since most equipment manufacturers submit their Christmas orders for components by the end of August, any changes in price will usually be pushed back to at least that point, or probably a few weeks after. That is why during this time of year, component lead times can go as far out as 6-8 weeks, making August the unofficial “deadline” for orders. However, when it comes to the expected new hardware releases this time of the year, going hand-in-hand with new software and components releases, we find that shipments on existing stock can be delayed.
NAND production cuts
The seasonal, new products tend to require the most recent versions of memory chips. In response, NAND manufacturers have been slowly reducing production on triple-level cell (TLC) NAND, the type that normally goes into memory cards, to allow inventory levels to come back down. TLC memory can store three bits of data in each cell, but, in return, they have slower transfer speeds, higher error rates, and lower cell endurance. The advantages of this type of memory are that it is physically smaller, needs less power to operate, and is cheaper to manufacture. Consequently, manufacturers have been increasing production of multi-level cell (MLC) memory, which is most commonly found in consumer devices. Hopefully, these component demands will alleviate current oversupply in the market.
One of the first NAND companies to officially announce a slow-down in manufacturing is Toshiba (see this from WSJ). On Monday, July 23, 2012, the Japanese-based corporation announced that they will be cutting production of their NAND flash memory by 30%. Toshiba-brand chips are commonly found in mobile digital devices such as USB drives and SD cards. This reduction in material is expected to start as early as August, which could contribute to increasing prices across the market as we move through 3Q12. A similar reduction in production by Toshiba occurred in the first half of 2009, but the company returned to full capacity shortly after.
Looking ahead in 2H12
So, what should you expect to see in 3Q12-4Q12? Excess inventory is an issue right now. In response, manufacturers may slow down production or even defer plans to increase specific chip capacities until inventories level out. Until recently, prices had been falling so fast that the demand for small-density components and devices almost disappeared while OEMs started including more storage capacity in their products. Manufacturers could build a product with twice as much memory for almost the same price. Also, the new, smaller, 20nm chips are expected to become mainstream by 4Q12, which could also reduce NAND supply because manufacturers are more focused on these new components. Once these new, smaller, 20nm chips really take hold, new equipment designs will be able to take advantage of adding even higher capacity NAND with roughly the same board space.
Visibility in the memory card market, which normally extends three to six months, is now down to about one to two months. For the moment, it looks like smooth sailing but we’ll see what the tide brings in as we get closer to September.