Business Tech

Industry insiders are accusing Apple of manipulating the price of NAND flash memory chips used in its popular iPhone and iPod products, according to a report in The Korea Times on Monday.

Citing unnamed sources, the article says Apple asks manufacturers to produce more chips than it eventually buys from Samsung Electronics and Hynix Semiconductor. The sources said Apple waits for the price of the chips to fall before making its purchase.

(Credit: Apple)

The practice of not buying all of the product originally ordered, semiconductor analyst Jim Handy told CNET, is "not uncommon in the industry."

Handy, of market research firm Objective Analysis, explained that these contracts are normally negotiated with a cancellation clause, with provisions to protect the supplier and buyer. He said companies usually work closely with the buyers, so changes to orders are normally small and don't cause many problems.

Supply and demand in the NAND market are currently about even, Handy said, adding that with the popularity of the iPhone and iPod, he's heard estimates that 20 percent to 30 percent of the worldwide NAND flash memory goes to Apple. In its fiscal fourth-quarter results, the company reported selling 10.2 million iPods and 7.4 million iPhones for the three months ended September 26.

Chipmakers Samsung Electronics and Hynix Semiconductor declined to comment for The Korea Times, as did Apple's Korean office. Contacted by CNET, representatives of Apple in the United States also declined to comment for the story.

The iPhone sales numbers continue to increase, as does the number of applications available for the device. Apps are one reason the iPhone has become as popular as it is among so many different categories of users in such a short time on the market.

Apple currently has more than 100,000 apps available for download, with users having downloaded more than 2 billion apps as of November 4.

Apple said Tuesday that it has made a $500 million prepayment to Toshiba for flash memory chips and indicated the market is stabilizing.

Apple COO Tim Cook says the flash memory market is stabilizing.

(Credit: Apple)

"The NAND flash market has now begun to stabilize and we expect it to move to a slight demand imbalance," said Apple Chief Operating Officer Tim Cook in Apple's Tuesday earnings conference call. (The call is available as an audio Webcast on Apple's Web site.) The news was reported earlier by Reuters.

"In terms of the Toshiba prebuy, we did a long-term supply agreement with Toshiba, as a part of that, as a part of the terms and conditions, we paid them $500 million," Cook said. "We view flash as a very key component for us because we use it in so many of our products and also we're a reasonable percentage of users of flash on a worldwide basis."

NAND flash is used for data storage in a variety of consumer products including digital media players and smartphones, such as the iPod and iPhone, respectively. For the last two years, flash chipmakers such as Japan-based Toshiba and U.S.-based Micron Technology have been reeling from severely depressed flash memory pricing.

Intel, which makes flash chips jointly with Micron, is also seeing a recovery in pricing. "For the year, it's up over 50 percent," said Troy Winslow, marketing manager for the NAND Products Group at Intel, in a phone interview earlier this week. He was speaking about the recovery in flash memory chip prices in the spot market. "That's been very positive for the industry and obviously we have benefited from that. And our business is going very well," he said.

Even with the better spot market pricing for flash memory--which is a boon for manufacturers--this won't necessarily translate into a jump in prices for consumers, according to Avi Cohen, managing partner at Avian Securities. "If the question is--will components (flash chips) cost 50 percent more than they did three months ago? Absolutely not," he said.

Apple got people talking this week on topics ranging from the merits (and demerits) of the tiny new buttonless iPod Shuffle to predictions about what it has in store for an upcoming iPhone 3.0 event.

Technology watchers--particularly those focused on trends in gadgetry--put on a collective smile Tuesday morning when Apple announced its latest version of the iPod Shuffle.

The grin wasn't necessarily out of excitement for the new Shuffle, which is smaller than a AA battery and also recites song titles, artists, and playlist names to help with navigation despite the lack of any screen on the device. It was more likely the recollection of that far-fetched but increasingly poignant spoof iPod Flea video that stormed the blogosphere several years ago. In the video by Photoshop maven Scott Kelby, the iPod Flea--bearing a striking resemblance to a Tic Tac mint--pokes fun at Apple's shrinking music players and the related accessory industry. That video came before a similar "Saturday Night Live" skit featuring Steve Jobs presenting the iPod "pequeno" followed by the invisible "invisa."

Photos: The wee little Shuffle

And here we are: the new iPod isn't quite mint-sized, but it does look much like a stick of minty gum. It immediately took some heat for being too small, shunning compatibility with third-party headphones without a special adapter, and for the fact that it doesn't have a screen or even any buttons. Some have come to the new Shuffle's defense, but one CNET contributor even went as far as calling it a disaster. Although that same writer, David Carnoy, later came around and realized that the real story may be that the Shuffle's "VoiceOver" feature is a precursor to Apple launching an entire new voice interface for its whole line of mobile products.

Despite taking some flak, the Shuffle's new interface did generate a lot of interest. Upon getting their hands on it, blog iFixIt immediately tore it apart to see what was inside. And CNET's Donald Bell gave it a generally favorable review.

But the Shuffle isn't the only thing Apple had up its sleeve this week. It also got people buzzing about what's next when it announced on Wednesday a March 17 invitation-only event to discuss a new iPhone SDK and an updated version of the iPhone software.

CNET News' Tom Krazit says this could explain why the company has been slow to offer renewals for current SDK licenses, as it might be requiring developers to sign a whole new agreement. While the software will be the main attraction, developers will be closely watching for details about how the new SDK will affect their businesses.

On the software front, judging by the comments about the event, iPhone users are looking for Apple to finally bring cut-and-paste capability to the device. Of all the advancements Apple has planned for the iPhone 3.0 software, that's probably the one users are hoping for the most. Click here for more of Krazit's take on what to expect from iPhone 3.0.

And in other product news, Krazit sorts through some of the Apple tablet and Netbook rumors and ponders the possibility the company is looking at a future e-book store or reader.

Also from Apple this week came the release of iTunes 8.1, which adds support for the newly released iPod Shuffles, along with some security fixes, promised new Genius features, and support for CD imports to iTunes Plus. Security-wise, the update includes a fix for a vulnerability that could lead to theft of usernames and passwords if a podcast containing malware were subscribed to.

Microsoft
Microsoft did a lot of looking ahead this week. Microsoft won't say how many people are running its cloud operating system, Windows Azure, but the numbers are growing. Senior Director Steven Martin said they are "approving more and more developers every day." And while much of the mainstream tech world is still getting its head around what exactly Azure will be, some software companies are already digging in and writing Azure code. Since it was announced in October, Microsoft hasn't said much about Azure. But expect more details at next week's Mix conference in Las Vegas.

On the desktop side, Redmond says it's done some work to make sure Windows 7 can run on Netbooks, the fashionable PCs du jour. It will offer a low-cost version of Windows 7 that can be run on less expensive Netbooks; that would obviously mean less profits. However, Microsoft thinks the line between traditional laptops and Netbooks will soon blur, and people will demand more performance in a smaller container, meaning there is still a future for a more full-blown version of Windows 7 in that field.

With Windows 7, it's also making an effort to "rescue" some apps that wouldn't run on Windows Vista, by making sure they will run on Windows 7. A few of the now-Windows-friendly programs include the Spanish-language IKEA Home Kitchen Planner, a German version of QuickTime, and the Arabic program Khalifa Cartoon Characters Creator.

Microsoft divulged a few new details--primarily of interest to developers--about its upcoming Windows Marketplace. The online store will sell apps that run on Windows Mobile devices and is expected to launch later this year.

The software maker will charge developers $99 a year to register, plus $99 for each application they submit to get a program into the app store. Developers who choose to charge for their programs will keep 70 percent of the proceeds, the same percentage Apple pays its App Store developers and slightly less than Research In Motion has said it will give for its forthcoming store.

Microsoft also added to its mouse and keyboard lines with its unusually shaped Arc Mouse--and there's nary a beige one in the bunch. It also stepped into a new realm in hardware with its Notebook Cooling Base, an inch-thick stand with a built-in fan that keeps the temperature of a laptop down.

Also of note
The South by Southwest Interactive Festival, which kicked off Friday in Austin, Texas, has seen explosive growth...Palm still hasn't said how much the upcoming Pre will cost, but we now know that the phone's service will be priced in line with Sprint's other smartphone services...AOL named a former Google exec as its new CEO...IBM took the wraps off a bevy of technologies with a distinctively social-network flavor...Obama's CIO has temporarily stepped down after FBI raids ex-employer...Facebook rolled out a new Twitter-like home page...Steve Wozniak got called a "Teletubby going mad" on "Dancing with the Stars" and then suffered a foot fracture...Google launched Google Voice, a sort of middleman for phone calls that, among other things, automatically transcribed voice mails.

Solid-state drives may see heady growth despite a sliding world economy, according to a report released Tuesday by a market research company. Devices like the Apple iPod and iPhone are expected to drive growth.

Micron Technology along with its partner Intel are challenging SSD market leaders Samsung and Toshiba, In-Stat said

(Credit: Micron)

Flash memory revenue in the solid-state drive segment will see compound annual growth rates of over 100 percent through 2012, according to market research firm In-Stat. The type of flash used in solid-state drives is referred to as NAND flash.

"You're starting from quite a small base. Back in 2006, you're in the tens of millions (of dollars) kind of a number. By 2012, you're easily over five billion. So the growth rates do get rather high," said Ian Lao, a senior analyst at Scottsdale, Ariz.-based In-Stat. The market researcher forecasts compound annual growth at 106 percent from 2006 through 2012, Lao said.

In the consumer segment, Lao says he expects to see most of the growth in small devices like portable music players and smart phones. Music players such as the Apple iPod and Microsoft Zune will adopt solid-state drives instead of the tiny 1.8-inch hard disk drives they use now because of better durability and shock resistance. "They suffer the risk of, hey, I just dropped my Zune, it doesn't work anymore," Lao said. SSDs will provide much greater reliability, he said.

And as smart phones become more PC-like, they will graduate from relatively simple flash drives to more sophisticated SSDs with the same Serial ATA (SATA) interfaces used in PCs today, Lao said. An iPhone, for example, with a more computer-like operating system and features would use an SSD, Lao said.

Future ultra-portable laptops, represented today by the MacBook Air and HP Voodoo Envy 133, will also drive SSD growth, as will Netbooks.

Sharp growth will also be seen in the corporate enterprise market. SSDs will, in an increasing number of cases, replace very-high-speed hard disk drives in server environments, Lao said.

Flash drives (non-SSD) will remain widely used in various music players, mobile handsets, after-market cards, and USB flash drives, with a combined market share of more than 80 percent during the next couple of years, according to the report. However, this percentage will drop to about 70 percent by 2012, as SSDs grow in importance, the report said.

Worldwide NAND flash revenues are likely to grow at a compound annual growth rate of 29.7 percent from 2007 to 2012 to reach $61 billion, In-Stat said. Revenues for NOR flash--used, for example, to store program code in cell phones--will increase at a 6 percent compound annual growth rate from 2007 through 2012.

Updated at 12:40 p.m. PST with Dell's comments and historical perspective on Apple iMac shortages due to lack of LCD flat panel displays.

LG Display, Sharp, and Chunghwa Picture Tubes agreed to plead guilty to criminal charges for participating in a liquid crystal display price-fixing conspiracy and pay $585 million in fines, the U.S. Department of Justice announced Wednesday.

The three companies worked in concert to set prices on thin-film transistor LCDs, which are used in computer monitors, notebooks, televisions, mobile phones, and various electronics, according to the antitrust unit of the Justice Department.

Apple, Dell, and Motorola were among the companies affected by the price fixing, antitrust regulators said.

"The price-fixing conspiracies affected millions of American consumers who use computers, cell phones, and numerous other household electronics every day," Thomas Barnett, assistant attorney general for the Justice Department's antitrust division, said in a statement.

The three companies, which were charged with violating the Sherman Antitrust Act, allegedly held "crystal" meetings and engaged in communications about setting prices on the TFT-LCD displays. They agreed to charge predetermined prices for the displays, issued price quotes based on those agreements, and exchanged sales information on the display panels, in order to monitor and enforce the agreement, the Justice Department said.

LG Display agreed to pay a $400 million fine, marking the second-highest antitrust fine ever imposed. The company pleaded guilty to setting prices with other unnamed suppliers for the TFT-LCD panels worldwide from September 2001 to June 2006, when the company operated under the name L.G. Philips LCD, a joint venture between LG Electronics and Philips Electronics. LG Display America was known as L.G. Philips LCD America.

Sharp, meanwhile, agreed to pay a $120 million fine and participated in the conspiracy between April 2001 and December 2006 with other unnamed suppliers. The conspiracy involved setting prices in three separate agreements for TFT-LCD panels sold to Dell, which used them in computer monitors and laptops.

And during the period ranging from the fall of 2005 to mid-2006, similar price-fixing schemes were employed in sales to Motorola, which used the panels in its popular Razr mobile phones.

Sharp's conspiracy also touched Apple from September 2005 to December 2006, in which Apple used the displays for its popular iPod music players.

Chunghwa agreed to pay a $65 million fine, for its participation in the price-fixing scheme from September 2001 through December 2006.

The Justice Department began its investigation in 2006 and notes its investigation is still on-going.

"Dell is aware of the announcement and will review its impact, but we have no comment at this time and probably will not in the near term as it's an ongoing investigation," a Dell representative said Wednesday, in an e-mail response.

Sony, a major LCD panel producer, also declined to comment.

For the LCD industry, problems began in the late 1990s when a surge in demand for notebooks and handheld devices drove up the need for LCD glass. As a result, the TFT-LCD makers built glass plants in Korea and Taiwan during 1998 through 1999.

But as those factories came online and began to pump out LCD glass, a glut took hold. And by the fall of 2000, prices on 15-inch flat panels plummeted to a point that in some cases manufacturers were having to sell their panels at $5 to $10 below cost.

Between October 2000 through August 2001, LCD makers were feeling the pain of an over supply of panels. But after August 2001, prices began to rise.

And apparently, it was no coincidence. Five months prior, Sharp had begun fixing prices on TFT-LCD panels sold to PC giant Dell and in September 2001, LG and Chunghwa also began to engage in price fixing, as well.

Analysts, at the time, predicted LCD shortages, especially in the 15-inch panel, would continue through 2002.

IDC analyst Bob O'Donnell noted at the time that while PCs tend to only go down in price over time, flat panel prices have occasionally risen. Said O'Donnell at the time:

LCD is one of the few (markets) where things have actually gone up in price.

Although Sharp admits to engaging in price fixing with Apple's iPod screens in the 2005 to 2006 period, it remains unclear whether other vendors may have engaged in a similar behavior with Apple back in 2002.

That's when Apple was hit with a component shortage of 15-inch LCD panels for its newly introduced all-in-one flat panel iMacs. As a result, Apple suffered a shortage of iMacs after introducing and touting its sleek iMac.

CNET News' Erica Ogg contributed to this report.

Japan's Ministry of Economy, Trade, and Industry is examining three reports of overheating iPod Nanos sparking fires, Reuters reported.

The first-generation iPod Nano.

(Credit: Apple)

The government agency said Apple had reported two other cases in which people had suffered minor burns.

The trade ministry said iPod Nanos with known overheating incidents were sold in Japan between September 2005 and September 2006.

Faulty batteries may be the cause of the incidents, the agency said.

Batteries have been traced to a host of issues with laptops and other mobile devices. Apple was one of several companies that had to recall notebooks in 2006 after problems led to overheating and fires.

Apple officials could not immediately be reached for comment.