iPod Upsets NAND Flash Applecart

AUSTIN, Texas — With demand for its popular iPod music player booming, Apple Computer Inc. plans to buy as much as 40 percent of the NAND flash output of Samsung Electronics Co. in the second half of this year, according to market research firm iSuppi Corp. (El Segundo, Calif.).

As Apple moves from a hard disk-based iPod to a flash-based iPod Mini player at the 4-GByte capacity, the switch could leave other NAND customers scrambling for supply, the market research company said.

In a report issued Friday (Aug. 19th), iSuppli memory analyst Nam Hyung Kim said sources told him that Samsung has offered Apple “extremely low prices on its Nand parts” in order to convince Apple to switch from HDD storage to NAND memory for the 4-GByte-density iPod.

The report said iSuppli believes that Samsung has offered to match prices from the HDD suppliers, even though current microdrive prices are about half the cost of the equivalent flash density.

Samsung would still reap profits, even at aggressive pricing levels, Kim said, adding that “sewing up the marquee iPod memory business is well worth the reduction in margins” for Samsung.

The South Korean memory giant plans to boost its NAND flash bit production by 190 percent this year, up from an earlier plan to increase bit production by 172 percent over 2004 production.

Apple’s demand for 4-Gbyte iPod Mini could amount to as much as 190 million to 280 million additional 256-Mbit-equivalent density NAND parts, representing between 11 and 22 percent of worldwide Nand flash output, the report said.

The deal’s impact on the NAND market could be a double-digit reduction in average contract prices for NAND in the second half, even as the market tightens up. Apple also is talking to Hynix Semiconductor about sourcing NAND parts, which could result in a fab capacity switch from DRAM to Nand flash at Hynix, Kim said.

Companies making MP3 players in Asia, vendors of USB flash drives, and other consumers of NAND flash, would be well advised to forge stable supply relationships for Nand flash going forward, rather than relying on the spot market, the report concluded.