Gartner: Strong Sales of iPods Will Drive Growth of NAND Flash Market in Second Half of 2006

Gartner predicts that the "strong growth in the portable media player market is expected in 2006, as the market is forecast to reach 187.7 million units, up from 134.5 million units in 2005." It beleives "the demand for portable media players, especially the Apple (AAPL) iPod, is a significant driver of sales of NAND flash memory. NAND flash-based players accounted for 80 percent of the market in 2005. Hard disk drive (HDD)-based portable music players made up the remaining 20 percent of the market."

Jon Erensen at Gartner said, "Digital audio players are rapidly transitioning to multifunction portable media players incorporating music, video, photo and basic game capabilities. The next generation of portable media players will be driven by video playback capabilities, wireless technologies, and integration with consumer electronics and automobile entertainment systems."

Erensen added, "We expect Apple to introduce a new, high-end NAND flash-based iPod by the fourth quarter of 2006, and this player will most likely have 10GB to 12GB of storage capacity. The impact of an iPod with this storage capacity will have significant implications for the NAND flash market."

Commenting on the roles the shuffle and nano have played in buoying the flash-based player market, Erensen continued, "Both of these introductions had a significant impact on the market, with competing vendors reacting by lowering prices and increasing capacities. Apple accelerated the highest available capacity, average capacity and lowered the cost per MB for NAND flash players with the shuffle and the nano, and we anticipate a similar course of events in the second half of 2006,."

Gartner forecasted that "a 16Gb (2GB) device will be available in the third quarter for about $30, down from its current price of about $35. Due to Apple's procurement power and investment, it is conceivable that it could get pricing for a device at $25 or even $20. This pricing would enable capacities of 12GB, leaving enough room for the remaining component and manufacturing costs as well as Apple's margin, while still reaching a $250 price point."

Gartner predicted "a 5.8 percent shortage of NAND flash supply in the fourth quarter of 2006 that will persist into the first quarter of 2007 with a 2.6 percent shortage."

Joseph Unsworth at Gartner said, "If a high-capacity NAND-based iPod is introduced, the severity of the allocation will intensify during the fourth quarter of this year, and our outlook of supply and demand for the first quarter of 2007 could become more severe than initially anticipated. Pricing pressure from Apple also puts indirect pressure on competing consumer products, such as flash cards and USB flash drives, which are still the major drivers of the NAND flash market. All of these products compete for consumers' discretionary spending."


Unsworth added, "If NAND flash demand intensifies in response to an aggressive announcement from Apple, then it is expected that several suppliers will move additional DRAM capacity over to NAND flash in an effort to gain market share and diversify their memory portfolios. If this scenario comes to fruition, the prospects for the DRAM market in 2006 and 2007 could be much better than anticipated."