Memory IC buyers can expect prices for NAND flash memory to fall through the year because of overcapacity and competition among suppliers to grow market share.

In addition, demand for flash will be a little weaker than last year because of the economic slowdown. NAND is used in a lot of consumer electronics equipment such as cell phones, MP3 players and digital cameras. If the slowdown gets worse, consumers will cut back on such purchases which would impact flash demand.

While demand growth may be slower for NAND, it will still be healthy and will rise for years to come, according to suppliers. NAND flash is being used in more equipment and suppliers say notebook computers and servers will be the new drivers of flash in the coming years as computer makers use flash solid-state drives (SSDs). In addition, the amount of flash in portable equipment will also grow, further driving demand.

Despite healthy demand, NAND prices will fall this year. The average price of a NAND flash chip, (including all densities) was $5.70 in the first quarter, according to researcher IC Insights. By the fourth quarter, the average price will drop to $5.00.

Although prices will fall, the global NAND market will still grow because demand will be fairly strong even if it isn't as strong as last year. Last year, prices fell an average of 12% but unit shipments increased 47% and revenue grew 29% to $14.9 billion, according to IC Insights. In 2008, unit shipments will rise 32% and revenue 22% to $18.6 billion.

Brian Matas, vice president of research at IC Insights, says he expects NAND suppliers will ease back on adding capacity in an effort to stabilize prices. He notes that Hynix said it was going to take one of its fabs offline in the third quarter and others have said they were cutting back on capital spending.

“I think they are joining the DRAM suppliers by thinking of not flooding the market with a lot of flash memory capacity that may not necessarily be needed,” says Matas. But he says Toshiba and Sandisk are bucking that trend and are moving forward with their joint venture of building new fabs that will be online in the next year or two.

Strong bit demand for NAND could attract more suppliers to the market or create more joint ventures such as the one between Intel and Micron that created IM Flash.

Strong demand has caught the interest of Numonyx, a joint venture between STMicroelectronics and Intel. Numonyx is primarily a supplier of NOR flash, but it also builds some NAND flash because of the strong demand.

“We are not a big player in NAND flash,” says Ed Doller, chief technology officer for Numonyx, based in Switzerland. “Our approach is we will put in capacity if we can recoup our investment.”

“Buyers like one-stop shopping,” he says. “To the extent we can offer them NOR, NAND and RAM all in one meeting or negotiation, that's a good thing for them.”

He adds that NAND demand will continue to grow because as the price falls, it opens new applications.

One such application is solid-state drives for computers.

Scott Nelson, vice president, memory business unit, for Toshiba America Electronic Components in Irvine, Calif., says NAND flash won't replace the hard-drive market but co-exist with it.

“The price per gigabyte for flash will never be equal to hard drive,” he says. However, the attributes of SSDs in certain applications make flash attractive.

In a notebook computer, “if you can get the price to within $200-300, the consumer is more likely to adopt a solid-state drive because of the benefits in boot time and higher performance compared to hard drive. They will step up to make that purchase,” says Nelson.

He says SSDs are in the launch phase. Demand for solid-state drives in 2008 won't be very strong, but will gain traction in 2009, he says.

“About a year ago we started our campaign for SSDs to replace traditional hard drives in laptops,” says Michael Yang, product manager for flash marketing for Samsung Semiconductor in San Jose, Calif. Samsung introduced a 128GB drive for notebooks.

He says the laptop/notebook market was the obvious market to go after because the density requirements are less than a desktop. “The size really gives flash memory the benefit over hard drives,” says Yang.

But as Samsung started talking to more companies and started to gather more formation “we were kicking ourselves because everyone was telling us this is much more of a no-brainer for enterprise systems,” he says.

Yang says in an enterprise server, speed is necessary and flash outperforms hard drives. “A server doesn't just stream data. It has a lot of data packets to deliver to a lot of users and handles a lot of inquiries. NAND flash handles that better because of its speed and performance compared to hard drives,” says Yang.

He says NAND flash input/output operations per second (IOPS) is 10-20 times faster than hard drives, and that is important for servers used in financial applications because they have to respond to millions of inquiries at the same time.

“For instance a Visa credit card center responds to millions of transactions and distributes that data and approves the transaction quickly. The SSD with significantly higher IOPS has lower total cost because the SSD does not cost 20 times what a hard drive costs.”

SSD also reduces total cost because it requires less power and generates less heat so there is a reduction in cooling costs at data centers.