Music player sales drive shortage of NAND flash

The soaring popularity of MP3 music players is driving demand for NAND flash memory chips faster than suppliers can keep up, and it could get worse if Apple introduces new higher-capacity flash-based iPods.

Sales of portable media players will grow from 134.5 million units in 2005 to 187.7 million units in 2006, according to a study from the market research firm Gartner Inc. released Wednesday.

Despite converting factories from DRAM (dynamic RAM) to NAND production, chip makers won’t be able to keep up with such growth. So the market for NAND flash will see a 5.8 percent shortage in the fourth quarter of 2006 and a 2.6 percent shortage in the first quarter of 2007, Gartner said.

That could lead to tough competition between flash makers like Toshiba, Samsung Electronics and the newly merged Micron Technology and Lexar Media.

Last November, Apple announced that it had reached long-term supply agreements with five major NAND memory manufacturers, including a flash memory company called IM Flash Technologies LLC — a joint venture between Intel and Micron. Such memory is used in Apple’s iPod shuffle and iPod nano players.

The pending flash shortage could be even more severe if Apple releases a high-capacity version of its iPod digital music player, said Joseph Unsworth, a principal research analyst for Gartner.

By the end of the year, Apple could launch a flash-based music player with 10GB to 20GB of capacity, far above the 1GB to 4GB capacity of its current flash units.

Many devices already have 30GB or 40GB, but they save song data on spinning hard disk drives, not solid state electronics. The industry is changing fast. Eighty percent of the devices made in 2005 used flash memory, with the rest using hard drives.

Greater capacity will let designers add new features. The next generation of portable media players will include video playback capability, wireless communication and integration with consumer electronics and cars.

Flash memory is popular with designers of digital cameras, mobile phones and digital music players because it can store a huge amount of data without requiring constant power.

Peter Cohen provided information used in this report.

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