The move by Samsung Electronics and Toshiba is a bonanza for consumers snapping up flash memory devices in increasing numbers and sets the stage for a fierce battle in the most profitable part of the memory industry.
South Korea's Samsung said the cuts, which have more than halved prices for some flash chips since October, are a long planned effort to expand the market.
But industry experts said Samsung and Japan's Toshiba are taking a pre-emptive strike against companies including, Hynix Semiconductor and Micron Technology that are trying to break the .
"We are beginning to see the oligopoly between Toshiba and Samsung hang on to the last stages of its life, and I'm sure they will want to maximize it while they can," Eric Stang, the chief executive of memory card maker, told a conference last week.
Flash chips do not need power to retain their data, unlike memory chips in computers, and so are ideal for removable storage like the memory cards made by Lexar. The market has boomed, along with sales of digital cameras and keychain-size USB drives for transferring data between computers.
Samsung and Toshiba together control about 90 percent of the $4.7 billion market for a type of flash known as NAND and analysts expect sales to grow to $16 billion by 2007.
Although new technologies typically become cheaper as increasing sales maximize production efficiencies, analysts said the particularly sharp drop in flash prices is partly a strategic move by Samsung and Toshiba to protect their business.
"A price decline at this point makes it very difficult for new entrants to compete in the market," said Satoru Oyama, senior analyst at Lehman Brothers in Tokyo. "This is (Samsung's and Toshiba's) way of telling newcomers: 'Follow me, if you can."'
The average price of 512-megabit flash chips has tumbled to $9 from a $21.50 peak in October, according to DramExchange. For consumers, that has resulted in bargains such as a 512-megabyte SanDisk memory card reduced to $98 from $221.
There is no suggestion that Samsung and Toshiba are acting in concert or otherwise behaving illegally.
"We have strategically lowered the price to nurture and grow the market," said Chu Woosik, a senior vice president of Samsung Electronics.
Toshiba was more circumspect. "It goes against market principle that suppliers alone set prices," a Toshiba representative said. "Any price is decided by the supply/demand balance."
That balance is tilting heavily toward further price drops as new entrants boost production. Infineon, Hynix and STMicroelectronics have recently started flash production, while Micron intends to enter the market in the third quarter.
"Because the market has been in undersupply, it has certainly attracted new entrants," said Joseph Unsworth, an analyst at Gartner. He expected flash chip prices to fall by about 32 percent in 2004 and 42 percent in 2005.
Even with those discounts, flash makers are expected to rake in profits. Citigroup forecasts Samsung will double its operating profit from its flash business to $1.9 billion in 2004 from last year.
"There is still plenty of margin left," said Betsy Van Hees of memory analyst iSuppli. "If you go back and you look at Samsung's earnings announcement, their margins were like 70 percent. So they're making a lot of money."