Slow MP3 Player Sales to Blame for Dampened NAND Flash Outlook

The first indicator we usually see with regard to retailers’ prospects for the MP3 player market this holiday season is sales for NAND flash memory, one of the principal commodities on which MP3 units depend. Today, the first indicators from industry analyst iSuppli were released and the news isn’t good.

It had predicted revenues for the third quarter for the industry’s top eight suppliers combines at $3 billion. They came in at $3.058 billion, which represents a decline in the annual growth rate of 16.8%, to 4.2%.

The bottom has yet to be found with regard to NAND's declining prices, which iSuppli at one time thought might have finally grounded out. After predicting prices would continue to decline by an annual rate of 20%, they instead fell 33%. When you look at the market from a per-megabyte scale, 25% more flash memory is being shipped than one year ago, but that's largely due to higher-capacity units, not generally higher demand per unit.

The news comes at the worst possible time for Microsoft, whose Zune MP3 player officially premiered today. If there's any good news for that company, it's the fact that the brunt of the decline is centered around #1 NAND supplier Samsung, the principal flash supplier for Apple's iPod.

Revenues from NAND this quarter for Samsung, iSuppli estimates, totaled $1.32 billion, only 4.3% higher than last quarter, and 11.5% lower than last year. Meanwhile, #2 Toshiba -- which manufactures the Zune for Microsoft -- is experiencing quarter-to-quarter revenue growth in NAND of a healthy $849 million.

With Toshiba coming off a 16% quarterly decline in the previous quarter, you can see what could be termed "the Zune effect." ISuppli added that Toshiba's NAND production in the last quarter rose by 70%, for reasons we can safely guess. Analysts will be interested in how long this effect lasts.

Number three supplier Hynix Semiconductor also saw gains this quarter of 11.9% over the previous quarter, to $565 million. In terms of market share, Samsung has dropped 3.1% worldwide to 43.1%, with Toshiba absorbing all of that business: up 3.2% to 27.8%. Intel -- a relative newcomer to this business -- surges from the #8 to the #6 player with 1.3% market share, while Infineon's slot has now been absorbed by spinoff division Qimonda, at #8 with 0.6% market share.

Last spring, Qimonda made indications that it doesn't intend to be a major player in flash anyway, focusing instead on more lucrative, lower-power DRAM designs, including a 58 nm process that company expects to unveil in December.

As iSuppli analyst Nam Hyung Kim warned this afternoon, the firm is likely to trim its forecast yet again, this time for NAND revenues in the fourth quarter. "The primary cause of the reduced outlook was the market for flash-based MP3 players," stated iSuppli's Nam Hyung Kim today, "whose sales appear to be falling short of expectations."

But a bright spot remains on the horizon, the firm said, as suppliers (Qimonda included) turn their attention to DRAM, leading to reduced production and, supposedly, eventually, hopefully (for the market), higher prices.