… But NAND Flash Memory Encounters Surprise Shortage in Q13 – IHS

A surge in demand for low-end smartphones in China caught memory suppliers by surprise and pushed the NAND flash market to growth – and shortages – during the first quarter this year, according to a Mobile & Embedded Memory Market Tracker from information and analytics provider IHS, Inc.

Shipments of NAND flash memory from January to March amounted to 8.7 billion units in 1-gigabyte-equivalent pieces. The latest total is up from 8.2 billion units in the fourth quarter last year and also represents the highest figure of the last five quarters but a run in supply ensued nonetheless.

After a discouraging 2012 and consequent reduction in NAND supply, memory manufacturers were not prepared when a shortage in NAND occurred starting in the first quarter. Even more surprising, demand prolonged into the second quarter, thrusting the industry into a position of shortage – a situation highly uncharacteristic of the NAND market.

The shortage was keenly felt in China, a hot market for low-end smartphones given the huge customer base in the country ready to move up to higher-end handsets. Smartphones typically embed either 4GB or 8GB of the memory solution known as embedded multimedia card (eMMC) containing a NAND flash chip, and clamor from the Chinese market for upgraded cellphones was a factor in global NAND scarcity during the first six months of 2013.

In contrast to the growing fortunes of low-end smartphones, high-end smartphones such as Apple’s iPhone and even the recently introduced Galaxy S4 from Samsung are showing signs of slowing down, underscoring the increasing saturation of the market of such handsets.

Still, mobile devices now consume approximately 50% of NAND flash supply, compared to all other gadgets. The uptake in NAND has been especially beneficial to eMMC as the product proliferates in smartphones and tablets. eMMC is favored because it supports high flash memory densities while taking up a small footprint and consuming little power – all qualities prized in phones and tablets where electronic real estate is at a premium. Shipments this year of eMMC are forecast to reach 903 million units, up a notable 39% from 653 million units in 2012.

With the latest shortage in NAND flash supply spilling into the low-density NAND space, smartphone chipsets utilizing the multichip package (MCP) approach combining NAND and DRAM might be pushed to switch to eMMC or eMCP, where more potential suppliers are available. Among these are KSI – the joint partnership between Kingston Technology of California and Phison Electronics from Taiwan, formed specifically to target the mobile segment, and a distinct beneficiary of the NAND shortage situation as memory buyers started looking elsewhere beyond traditional suppliers.

All told, the current NAND shortage could extend to most of the second half this year, with the dearth lifting only at the beginning of the fourth quarter.

However, whether the NAND market stands to reap a corresponding windfall will also depend on the fortunes of a much more precarious segment, the PC market. With PCs failing to generate much interest among consumers – undermining the penetration of solid-state drives, which take up a significant share of NAND demand – even the strength of the mobile space may not be enough to prevent the NAND flash market from swinging into oversupply in the fourth quarter.