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iPhone, competitors to strain NAND flash supply

Popularity of the iPhone and other portable devices will spur heavy demand for NAND flash memory this year, boosting revenue for manufacturers, according to a new report.

The iPhone and competing mobile gadgets are chewing up stock of NAND flash memory, which will lead to shorter supply and higher revenue for NAND manufacturers this year, according to a report Wednesday from iSuppli.

Thanks to the popularity of the iPhone and the launch of a slew of other portable gadgets, the number of mobile handsets with NAND flash memory will rise 13.8 percent this year to 732 million units from 643 million last year. The growth rate was 1.6 percent in 2008, said iSuppli.

NAND, a type of nonvolatile memory that retains its data even when the device is powered off, is commonly used in cell phones, MP3 players, USB drives, and memory cards. It is also found in solid-state storage drives, which are increasingly being used in notebooks. NAND stands for "not and" and describes the type of logic circuit used in these chips.

Apple has traditionally been one of the industry's heaviest users of NAND. Recently, one analyst said he'd heard estimates that about 20 percent to 30 percent of the world's NAND supply goes to Apple. The company has also cut deals with NAND suppliers such as Toshiba to prepay for more flash memory than it currently needs in anticipation of rising prices.

Combine the 35.2 gigabytes of NAND used in each iPhone with the fact that iPhone shipments are likely to hit 33 million this year, and the industry is facing periods of NAND undersupply this year, noted iSuppli. Such demand is good news for manufacturers and suppliers, who may see global NAND flash sales rise to $18.1 billion this year, up 34 percent, from $13.5 billion last year. In 2009, revenue was up 14.8 percent.

"The success of the iPhone in the smartphone category has spurred the launch of a series of competitive mobile phones," said Michael Yang, senior analyst for memory and storage at iSuppli, in a statement. "These include the Motorola Droid, HTC Android Iris, Palm Pre, and Google Nexus One. Although these phones may choose a different solution for storage memory, such as a microSD card, they will still aim to match the iPhone spec for spec in terms of memory capacity. This bodes well for NAND flash demand."

Beyond cell phones and other mobile gadgets, e-book readers and tablet PCs may also drive demand for NAND this year. Dedicated e-book readers like the Amazon Kindle probably won't have much impact as they use only around 512MB to 2GB of flash memory in each unit. That amount may rise over the next few years as more of these devices offer wireless access, prompting users to download additional content. But their influence on the market in 2010 will be small, said iSuppli.

Tablet PCs are a potentially different story. Apple's new iPad requires 32GB to 64GB of flash memory. If consumers flock to the iPad and other tablet computers the way they have to the iPhone and iPod, the NAND market will struggle even further to keep up with demand.

Supply and demand for NAND typically is a bit of a roller-coaster ride, with one shooting above the other for a certain period of time. Weak consumer spending forced NAND prices and industry revenues lower in 2008. But demand shot up in 2009, bringing prices along with it.

If a shorter supply of NAND means higher sales for manufacturers, does it mean higher costs for consumers? Not necessarily.

Even if prices go up per chip, they don't automatically go up per gigabyte, according to storage analyst Matt Bryson at Avian Technology. Original equipment manufacturers usually get around price increases in memory by offering lower capacity devices or keeping capacity the same on next-generation devices. Also, since Apple prepurchases flash memory to take advantage of lower costs, it doesn't need to boost prices on upcoming devices. Plus, companies are reluctant to change established prices on their products.

"Even if NAND pricing starts to go up, I don't think Apple or any vendor out there has the ability or the desire to raise pricing after they've set a price point," said Bryson. But the analyst said he believes that the undersupply of NAND may have more of an impact next year. "If things are tight for another year, the implications may be more severe next year than they are this year," said Bryson.