iSuppli: Apple cutting 2008 flash memory orders

Correction, February 22: This story misidentified how much iSuppli expects Apple to spend on flash memory this year. The company doesn't yet have a revised estimate for how much Apple expects to spend, and won't until more information becomes available.

Apple is reportedly cutting its flash memory orders for the year, in another sign it's worried about the economy.

iSuppli reported Wednesday that Apple has started informing its flash memory suppliers that it's planning to use less flash memory in 2008. Apple's still planning to purchase 27 percent more flash memory this year than last year, but iSuppli and Apple's suppliers had expected an increase of more like 32 percent. Update February 22: This was an error on my part. The 27 percent increase in flash memory spending in 2008 was iSuppli's previous expectation for the global market, not the revised expectation for Apple's spending. Right now, iSuppli doesn't have an estimate of how much Apple plans to spend on flash memory this year, and won't until more data becomes available.

If people hold off on buying iPods this year, Apple's flash memory purchases will have to slow.

(Credit: Apple)

Apple is the third largest buyer of flash memory among companies that manufacture their own products, according to iSuppli. If Apple coughs, the flash memory market gets sick. Several suppliers are expected to record a loss during the first quarter as the slower purchases coincide with a rise in spending on equipment.

Despite posting solid financial results in January, Apple's iPod shipments in the fourth quarter of the calendar year were below expectations. The company said it's shipping more of the higher-priced iPods like the iPod Touch these days, as opposed to the low-end iPod Shuffles, which makes sense since iPod revenue growth for the quarter was actually quite strong.

As that transition takes place, however, the unit growth of the iPod juggernaut might slow. This situation isn't the end of the world--lots of companies would be willing to trade places--but after almost five years of breakaway growth, Apple's rocket ship might be slowing down as consumers start worrying more about the mortgages and jobs as opposed to their digital music collections.

The company is notorious for giving financial analysts guidance below their expectations for an upcoming quarter, but in January it delivered earnings guidance that was 15 percent below analyst estimates, compared to an average guidance of 7 percent lower than expectations over the last seven quarters. Apple's stock went into a tailspin the next day, plunging 10 percent, and it has yet to recover along with the rest of the market.