… But NAND Flash Revenue Contracted in 2012

Apple Inc.’s iPhone was the single largest driver of NAND flash consumption in 2012, amid negative revenue growth in that memory market last year as ultrabooks failed to take off, according to an IHS iSuppli Data Flash Market Tracker report from information and analytics provider IHS, Inc.www.ihs.com

NAND industry revenue fell to $19.7 billion last year, down 7% from $21.2 billion in 2011. Forecasts indicate that revenue will pick up this year and rise to $$22.4 billion after last year’s stumble, and then continue to head up in the next few years.

With the iPhone 5 containing the highest amount of embedded NAND flash among all smartphones, shipments of the iPhone 5 together with Apple’s earlier-generation handsets were expected to reach 120 million units at an average density of 24.5GB, a 19% increase in density loading compared to 2011 for the consumer market’s most coveted handset. Overall, iPhones alone consumed 10.5% of the total NAND flash supply in 2012. In comparison, all other smartphones combined took up 10.4%, and low-end smartphones in general had average densities at the much lower 4 to 8GB.

A major drag on the NAND industry was the disappointing sales of ultrabooks, negatively impacting the flash memory prospects of SSD used in the super thin computers. While ultrabooks and SSDs 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.

Microsoft also didn’t help matters by deferring the launch of Windows 8 until Oct. 26, which left little time to generate interest among consumers and the corporate sector alike. As a result, PC shipments in the third quarter last year saw a substantial quarterly decline as consumers waited out the new OS, 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 purge production midway through 2012. 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. Even so, the second half last year 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 last year.

NAND flash manufacturers will need to continue to tightly manage their supply for the first half of 2013, the first six months of the year traditionally the weak period for the industry. And as the market moves 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 iSuppli believes.

Three devices will help prop up the NAND space
The fate of the NAND industry in the near and intermediate term rests on the support of three demand pillars: smartphones, tablets and SSDs.

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 OSs beginning to give Apple’s iPad some serious competition.

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.

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