Flash memory makers heading for tough times

Well, it was fun while it lasted.

For the past few years, manufacturers of flash memory have been living in their own private Camelot, particularly the makers of NAND flash, the stuff inside digital cameras and MP3 players, Although prices continually went down, demand grew so rapidly that many were reaping in profits. It was a nice change for the flash industry. One semiconductor executive once told Jim Handy now at Objective Analysis that "in aggregate, the entire flash market has had zero profit."

Too much factory capacity, however, is causing some of the air to leak out of the balloon. SanDisk yesterday reported strong financial results: revenue for fiscal 2006 was up 41 percent to $3.3 billion. Net income, however, dropped by about half to $199 million. SanDisk reported a loss for the fourth quarter, but there were acquistion costs baked in.

Worse, the company said that declining margins are on the horizon. Analysts have also noted that excessive investment in factory capacity in 2006 will likely depress prices this year. Spansion, the NOR flash memory outfit spun out by AMD and Hitachi, has been unprofitable for several quarters. (NOR is used in cell phones).

Will things go back to the bad old days? Probably not. New forms of flash, such as Ovonics memory, will likely come out in the near future that will increase density and lower costs. But the era when flash was the cool component in town may well be over.