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Changing the pyschology of memory pricing: instead of free fall pricing, memory purchasers are starting to adopt a more stable purchasing strategy  (Source: Samsung)
Practically every new mobile device today uses flash memory for storage -- are the parallels obvious?

One attendee at the Samsung FutureUnlimited conference described NAND factories as "the digital equivalent of an oil well."  It's certainly not hard to link the incredible margins of NAND memory to that of the world's largest commodity, but the similarities don't stop there.

An industry that totaled just one billion dollars in 2001 will eclipse the entire DRAM market within the next two or three years, totaling just over $15 billion in revenue last year.  Conservative estimates put the 2008 revenue total at $21 billion.

The world's insatiable appetite for solid-state memory dominates every facet of portable electronics, and with the introduction of 64GB and 128GB solid-state hard drives, the desktop is next. 

In just the last year, the major flash memory players sunk incredible amounts of money into new facilities.  Toshiba and SanDisk announced a joint-venture estimated to cost $16.7 billion to build three NAND factories in Japan. Samsung's one million square-foot NAND fab under construction in Austin is the largest single foreign investment in the U.S. ever; an appropriate home for digital Texas Tea.

Apple, Intel and SanDisk, to name just a few, adjusted earnings based solely on NAND pricing projections. Cheap, ubiquitous flash memory is bad for suppliers like Intel, but good for consumers like Apple.  The inverse is true during a shortage.

"Pricing has moved very rapidly, much more so than we thought," Intel CEO Otellini admitted earlier this week.

Samsung vice president of memory marketing Jim Elliot believes a fundamental change will occur with flash memory this year.  "We're going to see a psychology change this year.  The stair-step model for NAND pricing will become a sideways S-curve."  Elliot then flipped his slide deck to a picture of Sigmund Freud with a squiggly line on his forehead.

An outage last August at a Samsung NAND fab cost the company a "mere" $54 million in lost revenue, but it propelled the memory industry into speculation and unstable prices for months after.  Similar trends occur in the oil market when a refinery malfunctions.

"In the past, NAND prices tended to exhibit trends of oversupply and falling prices, followed by undersupply and flat prices," Elliot elaborated.  This is a trend typically found in markets like microprocessors.  "Moving forward, instead of minimizing inventory risks, we project companies will opt for strategic buy-aheads to take advantage of rise-and-fall price fluctuations."  This trend is more akin to the jet fuel market.

What Elliot describes is a bonafide futures market. The end result for consumers?  As the NAND market begins to stabilize, we'll stop seeing the price-per-gigabyte halve each year, and we'll stop seeing companies dramatically adjust earnings based a market that isn't as volatile.

With so many competitors in the NAND production game, it only takes a new factory or outage to upset the delicate spot market pricing. But as more companies like Intel and Apple begin to adopt the S-curve mentality, consumers will ultimately benefit from companies that can project supply and pricing for longer periods of time.



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RE: NAND is not like oil at all
By mdogs444 on 3/7/2008 5:38:00 PM , Rating: 2
Yes, there are many reserves still out there that are untapped - ANWR anyone?

But OPEC does control the output of OPEC countries production. Currently, they are keeping them at the same rate, but the OPEC countries (with direct influece from Iran & Venezuela) want to decrease production to drive up the price.


By Master Kenobi (blog) on 3/8/2008 12:11:54 AM , Rating: 2
The higher the prices go, the more economical it becomes to tap reserves outside of OPEC control, or use alternatives. They know this. Right now though the high cost of oil is not due to economics but rather politics and too much fear on several stock markets. Economics is taking a back seat on the Oil issue right now.


RE: NAND is not like oil at all
By BMFPitt on 3/10/2008 11:33:58 AM , Rating: 2
quote:
Yes, there are many reserves still out there that are untapped - ANWR anyone?
ANWR is our oil in a glass case. In case of peak oil, break open glass.


RE: NAND is not like oil at all
By smitty3268 on 3/11/2008 12:53:00 PM , Rating: 2
OPEC hasn't been able to limit production for a long time, now. Whenever prices go up high enough, some of the countries cheat by overproducing to get more money.

The problem now is that the US dollar is so weak it seems like prices have gone way up even when they really haven't. Plus, investors are speculating that prices are going to keep going up and it seems like a safe bet in a struggling economy.

I agree with the other poster, AMWR should be saved for when we really need it, just like the Strategic Oil Reserve.


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