Supply is short for flash memory

Consumers should not expect to see prices rise, but the shortage could keep equipment makers from lowering prices or adding new features, they said.

"When prices are flat, the OEMs (original equipment manufacturers) tend not to pass on price increases to users, but instead they tend to squeeze costs in other places to accommodate the higher prices they're paying for flash," said Jim Handy, an analyst at Semico Research.

Samsung and Toshiba, the top suppliers of NAND chips, the flash memory used in removable storage devices, have faced a surge in demand, Handy and others said.

NAND is used in cards for storing things like digital photos in cameras and can be removed from devices and plugged into a PC for downloading images, as well as in small keychain-size USB (universal serial bus) drives used for manually transferring stored data from one computer to another.

Handset makers are also starting to add removable storage flash cards to cell phones used in Japan and Korea, he added.

The news is good for SanDisk, the world's largest supplier of flash memory storage cards. SanDisk reported record product revenue in the third quarter as a result of what it called the "industrywide NAND flash memory capacity shortages." The company's stock price has tripled since the beginning of the year.

The shortage could mean lower gross margins for smaller flash memory device makers, according to Satya Chillara, an analyst at W.R. Hambrecht. "The second-tier guys are paying higher prices because they can't get capacity," he said.

The NAND shortage is not expected to ease until mid-2004 or even the end of 2004, after STMicroelectronics and Hynix Semiconductor get their initial flash chips into the market, said Betsy Van Hees, a principal analyst at market research firm iSuppli.

The total flash memory market is forecast to grow 42 percent in 2003 and 36 percent next year, Van Hees said.

Meanwhile, supply for NOR flash memory, used predominantly in cell phones, is tightening but not at a shortage yet, analysts said.

Multifunction cellular phones, such as camera phones, are driving the demand for NOR chips, according to Van Hees.

While spokesmen at NOR flash suppliers Intel and Advanced Micro Devices declined to go into much detail, they confirmed that demand was strong and prices were firming up.

"There are indications that phone makers are building up a pretty big inventory...in anticipation of the holiday shopping season and the Chinese New Year," said Allen Leibovitch, an analyst at IDC.

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