Apple's Flash in Plan

Demand for flash has been leading to spot shortages of the component. Apple moved to lock up flash supply by agreeing to buy up to 40% of Samsung's NAND flash capacity in the second half of this year, according to analysts.

But that may not be enough. The company has seen a backlog of orders for its iPod nanos, and its retail stores have frequently been sold out. And on a conference call earlier this month, Apple COO Tim Cook blamed the backlog on "supply constraints" and said that the company didn't know if it would be able to meet demand.

Cook didn't specify the supply issue, but analysts believe that flash memory is at its root.

"Apple is already starting to complain about shortages, and they're in one of the better positions," says Joseph Unsworth, an analyst at Gartner, a market research firm. He added that the shortages in the flash market "are only going to get worse."

A move to invest in the capacity of a flash memory maker might help solve Apple's supply issues, analysts say. The deal could take a number of forms.

Typically, a new, state-of-the-art fabrication plant would cost about $2 billion to $4 billion to build and equip, analysts say.

But that doesn't mean Apple would necessarily pony up half or even a significant fraction of that cost. More likely, say analysts, is that Apple would make a nominal investment -- say $100 million or so, that would essentially represent a down payment on products coming out of the plant.

In return, Apple likely would get preferential prices and access to the flash memory produced by the plant.

The arrangement would be similar to a deal Apple struck in 1999. Soon after launching its consumer-targeted iBook laptop computers, Apple invested $100 million in Samsung's LCD production capacity to ensure adequate supply of the displays at a time when they were hard to come by.