Obsolescence Insurance, a New High-Margin Business for EMS Companies
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The supply shortage of NAND flash in the third quarter of 2016 will exacerbate in the fourth quarter due to higher demand in the smartphone and solid-state drive (SSD) industries, according to the latest report from DRAMeXchange, a division of TrendForce. While this is bad news for buyers, suppliers are expected to experience higher margins and revenues in the fourth quarter.
The short supply, coupled with strong demand, also will contribute to rising prices of NAND flash wafers and memory cards until the end of 2016. DRAMeXchange also expects prices to rise for eMMC, eMCP and SSD products.
“Smartphone demand has remained fairly strong and is the main reason why the NAND Flash market started to boom in the second half of 2016,” said Sean Yang, research director of DRAMeXchange, in a statement. “Sales of iPhone 7, though have not achieved records comparable to the sales of previous iPhones, have been steady and are at an expected level. More importantly, the upgrade of iPhone 7’s storage options (a doubling of capacity for each of the three options) represents a several-fold increase in Apple’s consumption of NAND Flash.
Also contributing to demand are orders being placed by Chinese smartphone brands, including Huawei, OPPO and Vivo, thanks to strong sales for their mid-range and high-end devices, said Yang, which is driving demand for high-capacity eMMC and eMCP products.
“On the whole, increases in both smartphone shipments and the memory content per box for devices have led to further tightening of NAND Flash supply,” said Yang.
This week’s announcement by Samsung to stop all sales and exchanges of the Galaxy Note 7 is not expected to curb the price increases for smartphone components, including NAND flash, DRAM and AMOLED panels, according to TrendForce. It also isn’t likely to cause big changes in shipments of major smartphone brands, according to TrendForce's analysts.
However, TrendForce further noted that with rival brands expanding their smartphone production to take advantage of the Samsung situation, it could negatively impact the supply shortage and result in higher than expected memory prices.
In addition, demand from SSD manufacturers continues to increase as SSDs approach price parity with HDDs. DRAMeXchange expects the SSD adoption rate for notebook computers worldwide will exceed 30 percent for the first time, reaching nearly 33 percent, in 2016.
Demand also is growing significantly for enterprise-grade SSDs in the second half of 2016. Demand has been mainly driven by server manufacturers and data centers in the U.S. and China, said Yang.
In terms of 3D-NAND, almost all of the suppliers with the exception of Samsung face challenges related to yield rate and production efficiency, said Yang. “Furthermore, suppliers’ migration to the 3D-NAND technology has affected their 2D-NAND (planar NAND) production.”
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