I'm just speculating here, but with MP3 players and handsets converging, storage capacity is going to be an issue in handsets as well. The rampup of microSD is going to be a limiting factor and no handset manufacturer wants to be caught without the 1GB and larger cards needed. Yes, they can use smaller cards, and 512MB is much more than 128MB, but psychologically below the 1GB level, and poor in terms of trading off.
It's also easier to sneak in a $10 or $20 cost in the handset, especially via all the provider discounts and subsidies, than have the customer have to consider spending $50 cash on a memory upgrade at the point of sale. This is most important if there is significant competition with higher storage capacity (i.e. Samsung phones).
I probably follow a half-dozen handset message boards, and I can tell you that very few people are currently basing their handset purchases on the amount of storage. The lack of a card slot is sometimes a deal breaker but not storage density....most consumers are smart enough to know that they can go out and buy their own cards (usually with larger densities). It is a nice add-on, but there are just way too many factors that go into a handset purchase for storage density to become the primary characteristic by which handsets are judged.
Motolola with the ROKR experience knows first hand how limiting the number of songs, either artificially or by lack of flash memory limits the success of the product.
The ROKR failed because Apple required a 100 song limit. That is very different than only supplying 512MB of memory and giving the customer the option to buy more.
I hope things change in the future, but I just dont see NAND supply ever becoming important enough to Motorola to force them to buy a stake in Sandisk.
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