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iSuppli: Flash Market Suffers Major Contraction

10/31/2008 11:35:00 AM Eastern

El Segundo, Calif. — For the first time, revenues in the NAND flash memory market will suffer an annual decline, according to the research firm iSuppli.

Worldwide revenues from NAND flash products reached $13.9 billion in 2007 but will drop 14 percent in 2008 to $12 billion, iSuppli predicted. The market fares no better in 2009, when iSuppli predicts a further 15 percent slump in revenues.

The new forecast is considerably more downcast than iSuppli’s third quarter projections, which anticipated a 3 percent revenue decline in 2008 and a 12 percent drop in 2009.

According to iSuppli, the greatest challenge facing the market is “the nature of the applications that drive sales of NAND flash memory.” Products such as USB flash drives, memory cards and PMPs account for 80 percent of the market for NAND flash, iSuppli said. Retail bargaining on price is forcing suppliers to cut chip prices to boost sales, the firm added.

"Beyond the macroeconomic and structural challenges, the NAND flash industry also is experiencing the fundamental challenge of declining demand elasticity, said Nam Hyung Kim, chief analyst, iSuppli in a statement released with the findings. “With sufficient capacity in their existing flash storage cards and USB flash drives, consumers don't need to upgrade their products and are not as sensitive to price declines as they used to be.” The average selling price for 1Gbyte equivalent of NAND is expected to drop by 62 percent, followed by a 50 percent decline in 2009, iSuppli observed.

One up-shot: consumers will enjoy “fire-sale prices for flash storage,” iSuppli concluded.