Prices of NAND flash memory could plummet this year because of weak demand and an oversupply in the market, analysts said on Wednesday.

If concerns about the US economy deepen, consumers may reduce spending on phones, MP3 players and the other devices that use flash, weakening demand for the chips and depressing prices, said Nam Hyung Kim, director and chief memory analyst for iSuppli. He predicted that prices could fall by as much as 55 per cent this year.

Up to 90 per cent of NAND flash is sold as storage for MP3 players and mobile phones, or as cards such as the MicroSD that are slotted into digital cameras and other devices.

The reduced price for flash could lead to cheaper products for consumers. Apple already dropped the price of its 1GB iPod Shuffle this week, partly because of the falling prices of flash memory, said Shaw Wu, an analyst with American Technology Research.

"Flash pricing definitely has an impact in terms of giving Apple the ammunition to be able to lower price points," Wu said. At the same time, flash pricing was down a lot in the fourth quarter of 2007, so Apple could have dropped its prices sooner, though it would have earned it slimmer margins on its iPods, Wu said.

The concerns about the economy and consumer spending prompted iSuppli to slash its revenue forecast Wednesday for the flash industry this year. It now expects global NAND revenue to climb between 7 per cent and 9 per cent, down from its earlier projection of 27 per cent, Kim said. Global NAND revenue in 2007 was $13.9 billion, up 12.5 per cent from $12.36 billion in 2006, he said.

This year's revenue growth will also be affected by a reduction in flash orders by device makers, Kim said. Apple, one of the largest buyers of flash, ordered $1.2 billion worth of flash memory last year, but has slashed its order forecast for 2008, according to Kim.

Pricing in the NAND business is cyclical and the declines this year would not be unique. This year's 55 per cent decline will actually be slightly less than the decline last year, when prices dropped about 60 per cent, Kim said. Last year, however, Apple's iPhone helped to shore up the market when it was released mid-year. Apple isn't expected to have a new killer product this year that will bolster the market in the same way.

The killer application that will drive flash sales during 2008 will be mobile phones, said Joseph Unsworth, principal analyst at Gartner. Of the 1.2 billion mobile phones expected to be sold this year, about 650 million will have flash card slots, Unsworth said. The sweet spot in flash remains 1GB and 2GB capacities as many users can't find the need for more, Unsworth said.

The expected drop in demand isn't leading manufacturers to scale back production, Unsworth said. For fear of losing customers and market share, companies are adding production capacity and flooding the market with flash chips, he said.

Excess inventory and increased capital spending on new factories may ultimately bite into the suppliers' earnings, Kim said. Companies including Samsung, Toshiba, Intel and Micron are investing in new fabs this year, and if the US economy recovers and consumer spending increases, the companies are willing to bite the bullet this year to see larger revenue growth in 2009 and 2010. NAND flash is a mature market with lots of upside in the long term, Kim said.

Samsung took 42.1 per cent of the flash market last year with $5.86 billion in revenue, a 4.4 per cent year-over-year increase, according to data from iSuppli. Toshiba was second place with 27.2 per cent and $3.88 billion in revenue, an increase of 20.3 per cent year-over-year. Hynix was third with 8.8 per cent growth and $2.38 billion in revenue. Micron and Intel, in fourth and fifth place respectively, showed very strong growth of 139.2 per cent and 269.6 per cent respectively.