Obsolescence Insurance, a New High-Margin Business for EMS Companies
by 
Lisa Cairns
The more things change, the more they stay the same. Such is one version of the current tale in the NAND flash market as seasonally weak demand hangs on and prices limp along. Given how impressive 2014 was for a good chunk of the global semiconductor and electronics supply chain, it's a good time to check midstream channel health, particularly as the industry waits for the Fall demand and for next generation memory architectures to go into volume production. At the same time, experts keep a keen eye on upstream strategies; context is everything. Sure enough, there is more to the summer doldrums than seasonality alone.
2014’s economic stabilization brought renewed growth to the industry, notably for leading global distributors, both franchised and independents, as Gina Roos recently detailed in Top 50: A Year of Recovery for Distributors. 2015 was to hold the promise of continued economic recovery, which seems to be holding at a global level, at least, but no so much along the distribution supply chain.
Thus far, 2015 has been slow for the electronics industry, and really slow when it comes to memory movement in the channel. EPS reached out to those on the front lines, component distributors, to hear their view of the market. The question on the table was what the current and forecasted outlook for NAND is from a midstream perspective, given the expanding set of end-devices which should be forceful drivers. On the face of it this proposition rang true, as one component distributor confirmed, “NAND is going into more and more devices each quarter. The high-runners are SSDs and smartphones, especially with annual Apple builds, […] Apple’s competitors are keeping pace, eating up more and more product. Both consumer and enterprise SSDs are picking up steam, slowly but surely, as well.”
On the other hand, then why has NAND pricing has been flat or falling? We can easily track ASP spot pricing at sites like DRAMeXchange and inSpectrum. Flat pricing begs the question are we in a supply glut or a demand lull? Demand ought to be healthy given increased IoT, diversified end-markets (medical, automotive, industrial, enterprise SSDs, servers, etc.), consumer electronics (CE) ramps with new products (including smart watches), and the upcoming back-to-school plus winter holidays. EPS asked one distributor, if there are more end-products needing memory, and NAND in particular, isn’t there increased sales momentum? The answer was rather sobering: “As an industry, it seems that electronics has been slow all year, and with NAND becoming a main component in so many devices, we are seeing the effects in our market as well.”
So where is the demand for NAND currently? One analyst group, TrendForce, sites oversupply and a lag in demand from OEMs. The reason for the OEM lag is due to the transitional period ahead of new 3D NAND architectures destined for new mobile device ramps. Component distributors do see movement for Single-Level Cell (SLC) NAND for SSDs and memory cards driven by market demand for higher densities and higher speeds. However, as one source offered, “Many of the big NAND manufacturers are working to put out consumer-grade SSDs in higher densities, but that technology is quite a few months out.” 3D NAND product holds hope for renewed momentum, so the problem would seem to be supply for these chips. As the distribution channel reiterated, not much is expected to change in the coming summer months, other than aggressive pricing (lower) triggered from manufacturers to stimulate demand and get existing NAND into diverse markets and end-products – penetration. The channel sources hold hope for the next technology/architecture upgrades coupled with demand return come August for device ramps ahead of the winter holiday season.
There is one more side to this coin though, particularly since memory is an oligopoly. The recent earnings call from Micron underscores corporate strategic shifts. Memory and other chip manufacturers are, wisely, shifting away from traditional PC markets, notably, Micron and Intel. There is a well-understood opportunity that more end-market diversification will drive more NAND volume growth, but at the right price. Market shifts, as commodity distributors recognize, bring market lulls followed by uptake periods, whether vertical shifts or technology shifts. Perhaps this is a perfect summer storm comprised of 2015’s generally softer market, upstream shifts away from PCs, a technology lag in shifting to 3D NAND, and downward pricing manipulation by manufacturers to increase volume demand for new end-markets. If that is the case, then understanding NAND’s doldrums is academic. Once ASP is pushed low enough to entice greater uptake in new markets, and once the actual shift to next generation NAND technologies has occurred, then the 2015 NAND momentum drivers may finally engage. So now we watch the clouds roll out.
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