Apple

A surge in Apple's orders of flash memory may signal that a new iPhone is on the way.

(Credit: CNET)

It's been clear for a while that Apple seems to have settled into midyear iPhone refresh cycles as it closes in on the two-year anniversary of its debut, but more signs are pointing to a summer launch.

Think Equity Partners put out a report this week, spotted by AppleInsider, that says Apple has essentially cleaned out Samsung's supply of flash memory in recent weeks. Apple has also asked Toshiba and Hynix to step up with more flash memory, according to Think Equity, as it prepares for an iPhone launch.

Apple has a contract in place with the three companies, as well as Intel and Micron, to supply flash memory for Apple's products through 2010. But Apple tends to launch new iPods in the second half of the year around a September music event, making it much more likely that this buildup has a new iPhone in mind.

In January, Apple senior vice president of worldwide marketing Phil Schiller hinted that Apple has settled on a midyear refresh cycle for iPhones, after launching the original iPhone in late June and the iPhone 3G in July. The spring parade of iPhone rumors has not fully blossomed as of yet, but one persistent rumor is that Apple has some sort of low-cost iPhone in the pipeline, based on CEO Steve Jobs' comments about price umbrellas during an earnings conference call and a recent report suggesting a $99 iPhone is on tap.

Apple COO Tim Cook, however, has dismissed talk of Apple playing in the entry-level phone business, so as usual, it's hard to tell exactly what Apple has in mind. But even if all Apple did was double the storage capacity of the iPhone to 16GB and 32GB, it would need a lot more flash memory chips.

Early adopters of Apple's latest MacBook Pros and MacBooks (shown here) are reporting glitches with the laptops.

(Credit: CNET)

Problems with Apple's newly redesigned MacBooks are being reported on Apple discussion boards and across the Internet.

The new notebooks, which have already run into problems with the trackpad, are said to have problems with video performance, third-party memory chips, and staying in sleep mode. It's always difficult to get a sense of how widespread such problems are from tracking message board posts--and every computer ever made has had problems--but the volume of such complaints regarding the new systems seems to be increasing.

Gizmodo collected some of the more pressing problems in a post Monday. The memory issue involves crashes that appear to be linked to adding third-party memory chips into the new MacBooks and MacBook Pros. Apple charges way more for memory upgrades than other companies such as Crucial or Other World Computing, so savvy Mac users interested in adding memory on their own often choose one of those products.

That post also highlights an issue that involves the MacBook Pro being unable to stay in sleep mode, turning itself on when closed every minute or so, or freezing when woken up by the user. That issue doesn't seem as serious as the memory one, but if you've noticed this problem resetting your MacBook's PRAM seems to have worked for some people.

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Apple's moving to secure enough flash memory chips for the launch of the iPhone 3G.

(Credit: Apple)

Samsung is warning its customers that NAND flash memory might be hard to come by for some time after Apple placed a large order, according to a report out of Taiwan.

Digitimes reported Wednesday that Apple recently placed an order of 50 million 8Gb flash chips that it plans to use for that iPhone thing you might have heard about, and therefore the rest of Samsung's customers will have to wait for their chips. Samsung is one of the companies that Apple contracted with to secure supply of flash memory back in 2005.

The order would translate into 50 million GBs worth of flash (8Gb, or gigabits, equals 1GB, or gigabyte). So, since Apple's planning on having 16GB and 8GB versions of the iPhone 3G, that's enough memory for 3 million 16GB versions, or 6 million 8GB versions, or (most likely) a more even distribution between the two capacities.

Apple apparently ordered 25 million 8Gb chips in June to get the ball rolling, and is now planning for the ramp of the iPhone 3G. The company has steadfastly maintained that it expects to sell 10 million iPhones this year, and it needs to sell about 7.7 million units in the second half of the year to make that goal.

Apple has cut its 2008 flash memory orders by $200 million, according to iSuppli, setting up a down year for flash vendors.

In February, iSuppli reported that Apple was slashing its orders of flash memory amid a weakening economy, but iSuppli wasn't sure exactly how far the cuts would go. After crunching the numbers, iSuppli now expects Apple to spend $1.4 billion on flash this year for iPods and iPhones, up 12 percent from $1.2 billion last year. But the analyst firm, and the flash memory industry, had been expecting much more purchasing out of Apple, at least $1.6 billion.

The overall flash memory market is in turmoil, as overcapacity and slowing demand come together at the worst possible time. Plunging flash memory prices are expected to dent Intel's first quarter, among other companies likely to be affected. iSuppli projects that the entire market will grow just 9 percent this year to $13.9 billion, down from previous expectations of 27 percent growth to $17.9 billion.

Last month, Digitimes reported that Apple had yet to make a significant flash memory purchase in 2008, as it worked down through their existing inventory.

The offspring of Intel and STMicroelectronics, Numonyx, is ready to open its doors amid a volatile market for its flash-memory chips.

Numonyx is the combination of Intel's NOR flash memory business and STMicro's NAND business, which will make it the largest provider of NOR flash memory in the world and the largest flash supplier to the mobile phone market, said Brian Harrison, the former head of Intel's flash memory group and the new CEO of Numonyx. "We have a very broad product line that's not typical of a start-up company by any means," he said.

First announced last year, Numonyx is arriving a little later than expected. The credit crunch that's dragged down the stock market in recent months forced Intel and STMicro to alter the financing for the new company, but everything will be set to go as of Monday.

Numonyx will play in both major portions of the flash memory market. Its primary business, roughly 90 percent, consists of NOR flash memory, so named for the logic gates used to create the chip. NOR memory has traditionally been used as the primary storage in mobile phones, but that's changing as NAND memory becomes faster.

NAND is used in memory cards, MP3 players like the iPod, and more and more in mobile phones--the high-growth areas. As a result, Harrison expects Numonyx's NAND business to grow much faster over the coming year, although at only 10 percent of the total, there's a lot of work to be done.

The problem is that at the moment, the flash memory market is in turmoil. Prices are plummeting as flash buyers like Apple pull back their purchases in the face of a slowing economy. Intel is going to miss its earnings targets for the first quarter because the price of flash fell twice as fast as it had planned going into the quarter.

Numonyx CEO Brian Harrison

(Credit: Intel)

It's really the NAND market, however, that's facing the severe price crunch, Harrison said. Since Numonyx's primary business involves NOR flash memory, which hasn't seen the same dramatic plunge in pricing, the company is in a better position to endure the price drops.

And the real key to the deal, according to Harrison, is the work that Intel and STMicro have already done on a new type of flash memory called phase-change memory. This technology is still very much in the experimental stage, but phase-change memory effectively doubles the capacity of NAND memory and is almost as fast as RAM, the memory used in PCs. Intel and STMicro showed off phase-change memory prototypes earlier this year.

From Intel's standpoint, the Numonyx deal allows it to shed its NOR flash assets, although the company's 45.1 percent stake in Numonyx means it will have to record a portion of Numonyx's profits or losses on its earnings statements. Intel and Micron Technologies have formed a joint venture called IM Flash Technologies to manufacture NAND flash memory, which Intel wants to use in an increasing number of flash-memory hard drives for PCs and mobile Internet devices.

Intel CEO Paul Otellini has vowed to continue Intel's involvement in the flash memory market, but has promised to make sure the flash business doesn't hurt Intel's bottom line. Flash is going to be an important storage technology over the next decade, as smartphones continue to grow more sophisticated, Apple's iPod business stays healthy, and more and more PC makers experiment with solid-state hard drives.

As if things weren't bad enough for flash memory companies this year, they're now even more concerned since Apple has yet to place a major order in 2008, according to a report out of Taiwan.

Digitimes hasn't always been the most reliable source, but they have gotten enough things right lately to take notice, and their report Tuesday suggesting that Apple's flash memory orders have fallen off the face of the Earth jives with other information we've seen this year. According to Digitimes' sources in the Taiwanese flash memory industry, Apple has yet to place a big order of flash memory during this calendar year after spending about $1.3 billion in 2007 on flash.

Apple reportedly has yet to place a major order this year for flash memory used in iPods and the iPhone.

(Credit: CNET Networks)

Last month, iSuppli reported that Apple was cutting its flash memory orders. And at a meeting last week for financial analysts, Intel CEO Paul Otellini said that flash memory prices had fallen 53 percent from the fourth quarter to the first as demand slackened from Intel's biggest flash customer, believed to be Apple.

Even after all this time it doesn't seem that any other MP3 player is cutting into the iPod juggernaut, suggesting that Apple's primary concern is the state of the economy, not a competitive threat. At last week's Apple investor meeting, Chief Financial Officer Peter Oppenhemier said that "these are concerning times we're in."

Digitimes suggests that the rumored launch of an Apple Mobile-Internet Device using Intel's Atom chip might provide a boost for the flash memory market, but I'm still skeptical that kind of device--if it actually exists--would be that much of a catalyst.

If anything, I would think a compelling MID from Apple would take business away from either the iPhone or the iPod Touch, leaving Apple with the same amount of flash memory demand. Intel isn't expected to ship the Atom processor until the second quarter.

Updated March 5 at 5:40 p.m. PT to clarify paragraph on Intel's flash business.

Intel's profits will fade a bit in the first quarter as the company bears the brunt of falling flash memory prices.

The company announced late on Monday that it was reducing its expectations for gross margin from 56 percent to 54 percent "due to lower than expected prices for NAND flash memory chips." In a way, it's a narrowing of Intel's forecast, since the previous expectations came with a "plus or minus a couple of points" caveat. But narrowing to the low end usually isn't that well received.

Intel is trying to get out of the boom-then-bust NOR flash memory business, setting up a joint partnership with STMicroelectronics to create a company called Numonyx, which is expected to open for business by the end of the first quarter. With stakes of less than 50 percent, both companies will then be able to get their flash businesses assets off their books. UPDATED 3/5 545pm to clarify that Numonyx is involved with NOR flash memory, and that only the assets vanish with that deal. Intel will still record a portion of Numonyx's profit or loss in accordance with its stake.

Until then, however, the volatile flash memory market is very much an Intel concern. Also, 2008 doesn't appear to be shaping up as the tech industry's best year in recent memory, and falling flash prices might be a harbinger of further things to come.

Apple was reported to have cut its own flash memory purchases for 2008, with apparent expectations that the consumer tech spending frenzy of the past several years has finally run its course as credit tightens and the prices of other goods soars. On the other hand, Intel makes a type of flash memory called NOR, which has been losing ground to NAND flash memory.

Intel will host an investors meeting Wednesday in Santa Clara, Calif., that might provide some further details on what the chip maker expects from the rest of the year.

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.

Apple's long shadow over the flash-memory market might help it avoid serious problems in the wake of Samsung's production outage.

The second half of the year was already shaping up to be tight, as flash-memory companies switch over to new manufacturing technologies. But, of all things, a power outage in South Korea Friday could really make things difficult for companies that are depending on flash memory chips from Samsung this holiday season.

Analysts estimated that 15 percent of Samsung's output in the third quarter could have been lost because of the power outage. Not only will Samsung have to stop production for a couple of days, but some flash-memory chips that were in the manufacturing process could be ruined by failing to go through all the steps. Chipmaking and baking have more in common than you might think, and if the power goes out in the kitchen for several hours, that pie is not necessarily going to recover.

Apple will probably get all the flash it needs for its iPod Shuffles, despite Samsung's problems.

(Credit: Apple)

But Apple, unlike the rest of the industry, might have an easier time this fall getting all the flash-memory chips it needs for iPods and the iPhone.

Apple won't directly comment on its relationship with Samsung or other flash-memory vendors, but it's thought that Apple gets favorable supply terms because of its heft in the music player market. DRAMeXchange, a Taiwan analyst firm, estimated that Apple consumes 25 percent of the world's supply of NAND flash memory, and Samsung supplies about 44 percent of the world's NAND flash.

The outage might delay Apple's plans for future flash-based devices, such as a new iPhone, a new touch-screen iPod or a flash-based ultraportable notebook. If Samsung is able to get back up and running by Saturday, its stated goal, then the disruption shouldn't be too bad as other suppliers step in to fill the void, iSuppli said in a research note Friday. But an extended outage could hurt everyone.