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NAND flash shortage end could lead to dramatic price drop

Impending NAND flash oversupply will lead to price collapse of NAND flash chips and higher capacity enterprise SSDs, according to semiconductor analyst Jim Handy.

SANTA CLARA, Calif. -- The NAND flash shortage that started at the end of 2016 is on the verge of reversing to an oversupply that will cause prices to collapse dramatically.

That was the message Jim Handy, general director and semiconductor analyst at Objective Analysis, delivered yesterday in an annual update on flash technology at the Flash Memory Summit. Handy predicted the price of NAND flash could drop 80% in two quarters followed by more moderate price drops of 30% per year until the next shortage happens.

NAND flash shortages and periods of oversupply tend to be cyclical in nature, and each generally lasts for about two years, according to Handy. He said prices soar during times of shortage, boosting profits for manufacturers who have high motivation to reinvest in their businesses to avoid paying taxes on those earnings. Those investments eventually lead to an oversupply that drives the profits out of the business until the growing market catches up with the available capacity, Handy said.

The typical cycle of a two-year NAND flash shortage followed by a two-year period of oversupply could break from the usual pattern, according to Handy. He predicted that the addition of a new Chinese NAND manufacturer -- Yangtze Memory Technologies Co. (YMTC) -- will lead to an oversupply period of three years rather than the typical two years.

Quadrupling of SSD capacity for same price

But, even though Handy thinks NAND flash chip prices will collapse to cost with the oversupply, he does not expect the price of solid-state drives (SSDs) to fall in tandem. Instead, Handy expects that a customer paying $1,000 today for an SSD at a certain capacity to be able to get a drive four times that size at the same price in the future. 

"SSD prices will stay the same. The capacities will just explode," Handy said. "A terabyte might be the smallest enterprise SSD you can buy a year from now."

Predictions vary on the timing and the pricing impact of the potential NAND flash oversupply. At the very least, however, enterprise IT shops that noticed a slowing of flash price declines or sporadically constrained supplies of SSDs during the most recent NAND flash shortage could find changing market conditions in the coming months.

Howard Marks, founder and chief scientist at DeepStorage LLC, expects flash prices to drop in the range of 50% to 60% over the next two years. But he said the problem with advising enterprise IT pros to delay buying SSDs is that they tend to buy the drives as part of a system purchase from storage array vendors such as Dell EMC and IBM rather than directly from drive manufacturers such as Micron and Toshiba.

Delayed price fall from OEMs

"The price fall from OEMs is going to be delayed because [vendors are] going to make extra margin until customer pressure makes them reduce the prices," Marks said.

Marks offered the same advice he gives to anyone trying to maximize their bang for the buck: "Delay every purchase as much as you can. We are in an industry where prices decrease over time."

David Floyer, CTO and co-founder at Wikibon, said IT pros should buy flash storage when they need it. "If you try and delay it and then you have bad performance, you've lost your company a lot more money than you'd ever saved them by gambling on that," he said.

Floyer doesn't expect steep NAND price drops in the range of 50% to 80% in the imminent future.

"If you look at the curve, as you introduce each new generation and get more density, you get a shortage to begin with, and then there suddenly comes that point when that demand breaks, and that's the point at which [the price] comes down. And it hasn't for the last few times because 3D [NAND flash] is being introduced and [there was] a lot of slowness in that adoption," Floyer said.

"But when it gets in line that's going to crash [the market] down; it always does. It comes down and then it goes flat. That will go back to the cycle which DRAM and NAND and all of those things go through, and people like Micron were expert at juggling where they were," he added.

Handy said the "funny little uptick" for Micron was the exception to the pattern. He said, in general, the spot price of NAND flash has gone down steadily since late last year, signaling the beginning of the price collapse. 

"At the beginning, there will be a huge price drop, and then after that, there will be a much more moderate price drop of 30% per year until the next shortage. And then they'll go flat again," Handy said.

The latest 64-layer 3D NAND flash costs about 8 cents per GB, whereas 16-nanometer planar NAND stands at 21 cents per GB, according to Handy. The NAND flash shortage happened as manufacturers struggled with the transition from planar, or two-dimensional, NAND to denser 3D NAND.

"The thing that's caused the shortage is that manufacturing is not as efficient as it's supposed to be. It's getting there, and that's why we're getting into this oversupply," Handy said.

Handy predicted flash manufacturers will either close down their planar NAND fabs or convert them to DRAM, eventually leading to a significant drop in DRAM prices.

"We'll have a NAND collapse. Then we'll have a subsequent DRAM collapse as NAND capacity is put into the hands of the DRAM guys. They'll have capacity that is not being used efficiently, and the DRAM people will end up converting their capacity to foundry, and there'll be a foundry oversupply," Handy said. "So, the entire semiconductor market is going to go into an oversupply because the NAND domino fell."

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