Global 2012 NAND flash market contracts as ultrabooks disappoint, says IHS

Press release; Jessie Shen, DIGITIMES [Wednesday 6 February 2013]

Global NAND flash memory market revenues fell 7% in 2012 as disappointing ultrabook sales negated the impact of surging demand from Apple for its iPhone line, according to IHS iSuppli.

NAND industry revenues fell to US$19.7 billion in 2012, down from US$21.2 billion in 2011. However, revenues will pick up in 2013 and rise to US$22.4 billion after last year's stumble, and then continue to expand during the next few years, IHS predicted.

"Because of its high-memory density, combined with high-volume shipments, Apple's iPhone line in 2012 was the largest single consumer of NAND, helping to increase demand for the memory from the smartphone market," said Michael Yang, senior principal analyst for memory & storage at IHS. "However, ultrabook sales fell short of industry expectations, dragging down the overall NAND market for the year."

Apple's iPhones consumed 10.5% of the total NAND flash supply in 2012, while all other smartphones combined used 10.4%, IHS observed. The iPhone in 2012 had an average density of 24.5 gigabytes, a 19% increase in density loading compared to 2011. This represents the highest amount of embedded NAND flash among all smartphones.

A major drag on the NAND industry was the disappointing sales of ultrabooks, negatively impacting the flash memory prospects of cache solid state drives (SSD) used in the superthin computers, IHS pointed out. While ultrabooks have had some success penetrating into the consumer computing experience, adoption overall has been underwhelming, and the incremental increase to demand has been significantly below expectations. And while SSDs achieved significant growth in 2012, the expansion was diminished by the poor results for ultrabooks.

Microsoft also didn't help matters by deferring the launch of Windows 8 until October 26, which left little time to generate interest among consumers and the corporate sector alike, IHS indicated. As a result, PC shipments in the third quarter of 2012 saw a substantial quarterly decline as consumers waited out the new operating system, and high inventories of older Windows 7-based PCs remained in the supply chain well into the fourth quarter.

Such mishaps, along with overall muted demand, prompted the NAND industry to slow production midway through 2012, IHS said. Suppliers took action to prevent what would have been a disastrous year for all, and a shrewd move to stabilize pricing in August ultimately led to a minor rally in October, IHS noted. Even so, the second half of 2012 turned out to be weaker than expected despite solid results in the third quarter, blunting growth and resulting in the contraction of industry revenue by the end of 2012, IHS said.

NAND flash manufacturers will need to continue to tightly manage their supply for the first half of 2013, as the first six months of the year traditionally are the weak period for the industry, IHS suggested. And with the market moving away from low-margin applications like flash cards and universal flash drives toward higher-value applications, the success of NAND flash players will be increasingly dependent on a smooth transition from acting solely as pure-play sellers to that of providing complete solutions, IHS believes.

Three devices to prop up the NAND space

The fate of the NAND industry in the near and intermediate term rests on the support of three pillars of demand: smartphones, tablets and SSDs, according to IHS. Smartphones, for instance, historically provided important growth in NAND flash bit demand. And while growth is starting to slow when compared to the earlier boom years, the smartphone engine will not run out of steam anytime soon.

In comparison, tablets have only recently become a major driving force for NAND demand, with other tablet manufacturers and operating systems beginning to give Apple's iPad some serious competition, IHS said.

For their part, SSDs are still in their nascent stage despite making up a notable portion of NAND demand, as suppliers are still waiting for the tipping point when consumers fully embrace the new drives, IHS indicated.

Moving forward, 2013 will mark the start of another expansion period for the industry, IHS believes. Robust growth is expected, balanced with technology advancements and production expansion. In particular, the second half of 2013 will be healthy, boosted by increased demand throughout the NAND portfolio, IHS said.