Flash memory chips will be scarce items in the second half of 2007. That will drive flash prices sky high. Higher prices will hurt everyone from Apple to small chip firms that supply the flash card market. Ornot. Analysts and executives in the industry are debating whether there indeed will be a flash shortage. A shortage could have ramifications since flash is in such popular products as Apple�sAAPL iPod music player. It�s true that after a long period of sliding prices, flash prices have started to rise. In a Tuesday report, research firm DRAMeXchange says Nand-flash prices rose from 4%to7%the prior week. It says it was the second weekly price jump in March, and it blames a shortage of flash chips. The report has generated some fears, but not from everyone. �The story of a flash shortage is a little overblown,� said W.R. Hambrecht analyst Daniel Amir. �Samsung has been having difficulty� keeping up with market demand for Nand-flash chips, Amir said. �But we think Samsung�s competitors will pick up some of that business.� Samsung is the No. 1 maker of the type of flash memory chip called Nand. Nor is the other type, but Nand is the most popular. Micron TechnologyMU, Hynix and Toshibaalso are makers of flash chips. Device makers prize flash. Unlike DRAM, or dynamic random access memory, the main memory in PCs, flash chips retain data even after a user turns the device off. Micron says it�s ready to take up any of Samsung�s slack. �Regardless of what the market is doing short term, we believe Nand is the right place to be,� said Brian Shirley, vice president of memory at Micron. �We�veclosed the gapon process and product technology andwe�re in high volume.� Analysts saySamsungmaybe having trouble getting itsnewchip production process up to speed. They also say the rollout of some new flash-using digital devices, including Apple�s iPhone, is causing a spike in sales. Nand flash goes into flash cards, or tiny circuit boards, used in cell phones, MP3 music players and otherconsumerdevices.PCmakers also are adding flash to their computers to enable functions like instant- on. AskedifNandflash is in short supply, Jim Elliott, director of flash marketing for San Jose, Calif.-based Samsung Semiconductor, replied, �Yeah, we see a lot of momentumin theNandmarket.� Elliott says flash prices will rise in the second half of the year. Asked if Samsung has had to cut back on shipments to some small flash card makers, Elliott said, �I don�tknowaboutthat.Thewayit affects us is, demand is strong now. Andit will continue to increase.� Companies such as Silicon MotionSIMO, which makes controllers for flash cards, are caught in the middle. Controller chips connect flash cards to the cell phone, musicplayer and the like. Chief Executive WallaceKousays he sees flash prices rising.
That could hurt his business, he says, because fast-rising prices coulddampensales of flash devices. Silicon Motion�s per-share profit rose steadily in 2006. Its shares have risen 82% since July, but they fell 13% last week partly on at least one report, by Oppenheimer, that flash prices rising and flash chips are in short supply. Kou says he�s worried because he�s heard that the big flash makers are in short supply. �TherehasbeenarumorthatSamsung and Hynix have constrained capacity of flash,� he said. �It seems like we�re starting to see flash prices going up. I�m not sure whether it will last a whole quarter or halfyear or a short period of time. �I�m going to Korea and check with Hynix and Samsung to see what�s going on,� hesaid Tuesday. On Thursday, Oppenheimer analyst Vijay Rakesh downgraded Silicon Motion from buy to neutral. He says supply issues mean that if flash card makers can�t get enough flash, they�ll have less need to buy Silicon Motion�s controller chips. �Samsung is having manufacturing issues,� Rakesh said in an interview. �It�s yield issues. They were planning to go to 51-nanometer (next-generation chipmaking process) during the first quarter. Now they plan to make the move in third quarter. As a result, there�s not enoughsupply.� But Montgomery analyst Robert Adamsdisagrees. �To say there�s a fundamental issue with supply in the Nand-flash base is ludicrous,�Adamssaid. �Capacity was artificially manipulated to firm pricing during a weak first quarter.� Such manipulation, to a degree, is par for the course in chip production. Samsung�s Elliott confirms the company shifted some capacity from flash toDRAMsbecause profit margins onDRAMshad risen.He says that�s part of the natural cycle in the memory chip game, andNam Hyung Kim, an analyst for market research firm iSuppli, agrees. �Around 5% of the global DRAM unit growth (in the first quarter) came from a shift from Nand to DRAM,� Kim said. �We expect until fourth quarter,DRAMmargin will surpass Nand. �Nand (prices) have hit the bottom. I expect they will recover, but at what rate we�ll have to wait and see.�