NAND Chip Slump Not so Bad

The drop in industry demand in the first quarter was less severe than expected.
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Japan's

Toshiba

grew its share in the market for NAND memory during the first quarter, while an industrywide slump in demand for the memory chips was less severe than expected.

The global market for NAND chips declined 8% sequentially, with total revenue of $3.2 billion, in the first quarter of 2006, according to industry research firm iSuppli. But that drop was less than the 12% falloff that iSuppli had initially forecast for the quarter. The reason, according to iSuppli, was that prices for NAND chips did not slide as much as expected. Average selling prices for NAND flash declined by 22.5% in the quarter, vs. an expected 28%.

"The limited decrease in ASPs and the strong rise in unit shipments show that the NAND flash market was not as bad as many had expected in the first quarter," said iSuppli analyst Nam Hyung Kim.

NAND flash is a type of memory chip that retains data even when the power is switched off. The technology has proven well-suited to new electronic gadgets such as MP3 players, digital cameras and cell phones.

As sales of MP3 players, particularly

Apple's

(AAPL) - Get Report

iPod, have slowed in the first quarter, and flash memory companies like

SanDisk

(SNDK)

have announced significant price cuts, some industry observers have voiced concerns that a glut of flash chips could be in the making.

"A shipment backlog from the fourth quarter and continued strong demand for embedded flash helped promote overall price stability, and helped compensate for weak demand from the MP3 player and removable-card markets," said Kim, who also noted that weak prices in the spot market did not impact overall average selling prices to a great degree.

And while first-quarter revenue was down 8%, sales were still up 60% from the same time a year ago, according to iSuppli.

Toshiba, the world's second largest producer of NAND flash chips, boosted its share of the market by revenue to 24.6% in the first quarter, a gain of more than five percentage points. The gain owed to Toshiba's less-than-average decline in average selling prices during the quarter.

By contrast, South Korea's

Samsung

, the No.1 flash maker, saw its share erode from 50.8% in the fourth quarter of 2005 to 48.7% in the first three months of 2006. And

Hynix Semiconductor

, the third largest NAND producer, lost nearly 2 percentage points of market share, to come in at 14.8%.

iSuppli said that it was sticking with its projection for 28% growing in 2006 NAND flash sales, despite the surprisingly strong first quarter.