High demand, insufficient production, and transitions to smaller manufacturing processes have caused greatly increased prices in the NAND and DRAM storage markets.
Pricing and supply issues have plagued the flash memory markets throughout 2017 for a variety of reasons. Reuters reported in June that Apple—which is reported as buying about 18% of the global annual supply—has significantly disrupted the market with component orders for the iPhone 8. The tight supply chain and high costs resulted in Apple increasing the prices of some iPad Pro models by $50 to absorb the increased costs of NAND memory. And, as ZDNet's Adrian Kingsley-Hughes wrote, could have led to the iPhone's price hike as well.
Indeed, effects are being felt across the tech industry, with production of the notoriously difficult to obtain Nintendo Switch hampered by parts shortages, according a report in the Wall Street Journal.
Unfortunately, analysts are expecting high prices and supply constraints to persist into the first half of 2018. Market analysis firm DRAMeXchange has forecasted an "annual bit growth," that is, production increases measured in bits, at 19.6%, with demand growing at 20.6%, leading to a continuation of the current trend of insufficient supply.
Amid the supply issues and increased cost of NAND chips, sales of all-flash arrays have slowed, as a report from a Morgan Stanley analyst indicated that enterprise buyers may be holding off on flash array adoption in hopes that the market will return to more normal levels. The report also indicated that Pure Storage—which just hired a new CEO in August—is looking to sell itself as sales of flash arrays have slowed.
When will supplies increase?
In the immediate short term, SK Hynix will be able to increase production at their M14 plant by 80,000-100,000 wafers by the end of 2017. Both Samsung and SK Hynix are in the process of building new plants, though these are not expected to be online until 2019 at the earliest, according to the aforementioned DRAMeXchange report. Micron has not yet disclosed plans for future expansion, though the report notes that one site of Micron Memory Taiwan (formerly Rexchip) is only at 60-70% capacity at present.
SEE: Storage spotlight: SAN, NAS, tape, and all-flash arrays (Tech Pro Research)
The other major player in the flash market is Toshiba Memory Corporation (TMC), a unit of the beleaguered Japanese firm Toshiba. TMC is in the process of bringing a new plant online, though this has been hampered by the financial woes Toshiba has experienced at large. In an effort to ease the financial strain on the parent company, Toshiba has been looking to spin off TMC since late 2016.
Toshiba plans to sell flash production to Bain-led group
Finding a suitable buyer for TMC, however, has been a significant challenge, and has faced a number of delays, following a protracted (and still unresolved) legal dispute with Western Digital about their joint investment in a new plant ("Fab 6") intended for 3D NAND production. Construction for this new facility began in March, with Toshiba owning 55% of the facility.
Rather than sell TMC to Western Digital outright, Toshiba has agreed to sell the flash production division to a consortium led by Bain Capital for $18 billion USD, with financial support provided by the Innovation Network Corporation of Japan and the Development Bank of Japan, as well as Apple, Dell, SK Hynix, Kingston, and Seagate, among others. Approximately $3.13 billion of the sale proceeds will be reinvested into TMC by Toshiba.
This sale should help stabilize TMC's position in the memory market. According to DRAMeXchange:
This deal, which also puts TMC outside of Toshiba's ownership, will also create medium- to long-term changes on the NAND Flash industry. The expenditure of this independently managed company will not be influenced by the financial problem of its former parent company, and it does not have to share resources with other group companies. The spun-off NAND Flash maker therefore can totally concentrate on developing technologies and building up production capacity. On the whole, the newly independent memory business is likely to achieve greater operational efficiency and become more proactive in making strategic decisions.
Defensive investment in TMC
Given Samsung's position as market leader in NAND memory production, there is natural unease about TMC-a close second-falling far behind. Apple, in particular, has a tumultuous relationship with Samsung over lawsuits claiming that the Galaxy series of smartphones copied the design of the iPhone. Apple has a clear interest in not relying too much on one manufacturer for memory. Likewise, Dell EMC is a major purchaser of NAND flash for their line of enterprise flash arrays, and Seagate uses NAND flash for hybrid drives and disk caching.
What's your view?
Have you held off on buying SSDs or larger items, such as hybrid or full-flash arrays because of the increased price of NAND storage? Share your thoughts in the comments.
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