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NAND flash, SSD price drops slow as chip supply tightens

Carol Sliwa

Updated forecasts show that NAND flash revenue should reverse the losses of a year ago and surge by 20% to 25% this year, but the prices of chips and SSDs

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won't match the steeper reductions of the past, according to industry analysts who track the market.

The price of the solid-state drives (SSDs) that enterprises use in the data center will drop 32% this year in contrast to the 39% decline of a year ago, according to International Data Corp. (IDC). The statistics represent the "factory-out" price from SSD vendor to OEM, not the cost that end users pay, and they took into account the mix of single-level cell (SLC), enterprise multi-level cell (MLC) and MLC SSDs in use.

Jeff Janukowicz, a research director at Framingham, Mass.-based IDC, said the price of enterprise SSDs will continue to fall largely because of the increased use of less-expensive MLC flash over the more costly SLC flash that manufacturers initially favored. But, he said, overall, SSD prices are not declining as fast as expected due to the slowed price drop of NAND flash.

NAND flash pricing has a significant impact on the price of the SSDs. Kevin Kilbuck, director of NAND marketing for Boise, Idaho-based Micron Technology, which manufactures both raw chips and finished drives, said NAND flash represents the single largest bill-of-material component. He estimated that NAND accounts for about 60% to 80% of the total cost of an SSD.

IDC predicted the average sale price (ASP) for 1 GB of NAND will fall 14% in 2013, a revision over the 26% price reduction that the firm predicted earlier this year. Forward Insights, a market research firm in North York, Ontario, also foresees a 14% decline, but Stamford, Conn.-based Gartner Inc. expects an industry-record low of 10% this year, after drops of 33% in 2011 and 41% in 2012.

"Prices have fallen much less than historically because the market has been in a considerable shortage, just like what happens when gas demand is high; prices go up," Joseph Unsworth, a research vice president at Gartner, said via email. "Cost reductions are slowing, too, which means they can't reduce prices nearly as fast."

Unsworth predicted the price of SSDs will slide slightly the rest of the year and then creep lower based on price declines for the raw NAND flash. Gartner projects the NAND ASP will fall 19% on average during the next five years, and Unsworth said he doesn't expect a major technology-based price reduction until mid-2014 or later.

Jim Handy, chief analyst at Objective Analysis in Los Gatos, Calif., predicted the NAND flash price drops probably won't happen until the middle of 2015, due to the chip shortage. He added that the shortage will have no impact on the supply of enterprise SSDs, but could affect smaller or less-established drive manufacturers that may have trouble getting chips.

NAND flash shortages occur on a cyclical basis in the semiconductor industry as manufacturers adjust capital spending and production in response to supply and demand. Handy said NAND manufacturers' ramp-up of capital spending from mid-2009 to mid-2011 led to an oversupply and subsequent price declines, and the subsequent shutdown from mid-2011 to mid-2013 is resulting in the shortage.

"Because of the fact that there's relatively steady demand growth for gigabytes but there's not production capacity growth, then the prices stabilize and revenues grow at the same rate that the gigabytes grow," Handy said. "The big deal [this year] is that the prices have leveled off, so that's making the revenues grow faster."

NAND flash revenue is expected to surpass $25 billion this year among the six manufacturers: Samsung, Toshiba, Micron, SK Hynix, SanDisk and Intel. IDC projects $27.7 billion, Gartner predicts $29.3 billion and Forward Insights currently forecasts an even $30 billion.

Even if the NAND shortage curtails price drops, Handy said end users could still see their overall storage costs decline as they change the mix of SSDs and hard disk drives, and the industry continues to figure out more effective ways to use flash technology. He predicted, for instance, that IT shops ultimately will move away from SATA- and SAS-based SSDs to PCIe flash cards, and eventually NAND flash on the memory bus instead of behind a disk interface.

Vendors that sell storage systems based on flash technology have gotten creative in adapting the technology to lower costs for customers. For instance, Violin Memory claimed to double capacity in the same footprint using the latest MLC flash based on 19-nanometer process geometry, while also reducing the power requirements to run the box, according to Narayan Venkat, vice president of products at Edison, N.J.-based Violin Memory.

Greg Wong, founder and principal analyst at Forward Insights, said the competitive landscape tends to have a greater effect on pricing for enterprise SSDs than the NAND flash ASP, as OEMs pit one drive manufacturer against another to try and negotiate the price down.

"Last year, the three biggest [drive manufacturers] were probably Hitachi, SanDisk and STEC on the SAS side, but you have other suppliers coming in now," Wong said. "Everybody wants to get a piece of this market, and the pricing will be affected accordingly."

Wong said enterprise SSDs consumed 3.5 % of the 34 PB of NAND flash memory shipped in 2012, and he predicted they will consume 4.5% of the 47 PB shipped this year. He said true enterprise-grade SSDs, such as eMLC drives, tend to see less fluctuation in price than consumer-grade SSDs because they are specially made and require more testing and screening.

"If NAND pricing goes down 40%, those [enterprise] prices are not going to go down 40%. They'll go down maybe 10%," Wong said.


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