Flash Slowdown on the Horizon
Analysts say oversupply inevitable
By Steven Fyffe
Flash memory's rise last year happened even faster even than its name would suggest.
In the space of a few months, flash went from a losing proposition to a winning ticket. Demand skyrocketed. Inventories emptied and lead-times stretched out. But will it drop just as dramatically when supply catches up with demand?
"At some point, the supply of flash chips will catch up with demand, and usually it overshoots. And when things turn, they turn fast," said Jim Cantore, program manager for semiconductors and memory at International Data Corp., Mountain View, Calif. "If the cell phone industry goes soft, it's going to hurt all the suppliers. You wind up with a real potential for disaster."
A slowdown could be as close as one year away, said Richard Wawrzyniak, director of nonvolatile memory services at Semico Research Corp, Phoenix.
"In less than 12 months, we will get to an over-capacity situation, but flash is not going to be affected as much as DRAM," Wawrzyniak said.
Today's surging demand is an indication that a slowdown is not far away, Wawrzyniak said.
"Traditionally the industry is subject to cycles. Generally when you are starting one of the cycles, DRAM has always been the first segment to lead the charge upward. This time around, for the first time ever, it has not happened that way. This time, flash has been the one."
Anticipating just such a slowdown, brokerage firm Salomon Smith Barney downgraded the entire semiconductor sector last month. Semiconductor stocks tumbled in the wake of the comments. However, Wawrzyniak said Salomon's predictions were premature and overblown.
"There's been a lot of talk about the new capacity that's going to be coming online and how that's going to drive flash into over capacity … It's going to happen, but it's not going to happen as quickly as some people have predicted."
The flash market will continue to grow from $8.6 billion this year to $23.2 billion in 2004, Wawrzyniak said.
Flash memory supplier Silicon Storage Technology Inc. (SST) said a slump in the cell phone market would not damage its business.
"We do not expect that any slowdown in the cellular components market would impact SST in a material way," said Bing Yeh, president and chief executive officer of SST.
"Over the past several years, we have established a very diversified product portfolio to serve a wide variety of applications within the digital consumer, networking, wireless communications and Internet computing markets."
If cell phone sales failed to fulfill their promise, the growing Internet appliance market would absorb the leftover volume, Wawrzyniak said. "Flash goes into a lot of emerging markets. Cell phones are probably right on the verge of becoming a real established market, as opposed to MP3 players and digital cameras."
"Even though there will be a shakeout in emerging markets, flash won't be harmed by that. As happens with emerging markets, not all the solutions are going to work at the end of the day. The market will eventually pick the two or three best ways of doing these things. The remaining two or three are going to consume all the volumes. When it transitions from emerging to established, the volume always goes up; it never decreases," Wawrzyniak said. |
