Apple's iPhone Causes Worldwide Memory Chip Shortage

Among the list of things for which Apple's ever popular iPhone is responsible, you can now add "causing a worldwide shortage of memory chips."
That's the word from market research firm iSuppli today in a report saying that supplies of so-called NAND-type flash memory, which is used to store music, video and apps on the iPhone, will reach a point of critical shortage during 2010, as Apple is expected to boost the iPhone's capacity to 64 gigabytes, prompting rivals like Nokia, Google, and HTC to boost the memory on their own phones to keep up.
As it happens, as iSuppli analyst Michael Yang tells me, the iPhone consumes more NAND flash memory than any other product, about 30% of the world's supply, he says. He expects Apple to ship 33 million iPhones during calendar 2010 -- and calls that a "conservative forecast" -- with an average memory density of 35 gigabytes per unit. Meanwhile, Apple will also be launching the iPad this summer as well, further adding to its flash demands. I also have to wonder if we'll see a 128 GB iPod touch this year.
The shortage will be good news for flash memory suppliers like Samsung, Toshiba, Micron Technology, Hynix and Intel, who will be forced to run their factories full-out to keep up with demand. "They won't be able to make the chips fast enough," Yang says. That should end in October, when the demand for chips that go into products sold during the Christmas season comes to and end, and chipmakers start to slow down production once again, trying to avoid having unsold chips left over in inventory. "No one wants to be the last one to stop building chips," Yang says.
What's good news for the flash manufacturers will be very bad news for consumer electronics companies not named Apple. With flash chips in short supply, they'll have some difficult choices. Typically they like to boost the capacity in their products every year, say from 32 GB to 64 GB for close to the same retail price as before. That will happen in fewer cases, Yang says, and those who do release upgraded products will face the prospect of having to wait for all the chips they need.
Overall, iSuppli expects that the number of mobile handsets that contain NAND flash chips to grow to 732 million units in 2010, representing a growth rate of nearly 14%. Other products that will drive demand, and thus contribute to the shortage include electronic book readers like Amazon's Kindle, as well as USB keychain drives, memory cards of every type and camcorders including Cisco's Flip cameras will also do their part contributing to the shortage.
Apple won't have any supply problems because of its history of using its substantial cash reserves to lock supplies of key components like flash years in advance. That's at least one important use for that $40 billion-and-growing pile of cash in Apple's vaults.
One other side effect of this flash shortage will apply to netbooks and PCs. The capacity of the flash memory hard drives, also known as SSD or solid state drives, will be growing at a slower pace this year, Yang says. "The demand for flash used in SSD drives will increase, but you won't see the hockey-stick growth line that so many people expected," he says.
Yang expects that global demand for NAND flash will push revenues to $18.1 billion in 2010, a surge of 34% from 2009, and will hit $25 billion in 2013. There is however one interesting surprise. With a supply shortage you would expect that the prices on flash would soar. In fact Yang says they're going to decline by 26% during the year. That he says is a good year for flash prices. A bad year is one where prices decline by 50% or more.