NAND prices have been falling fast. But is it a buying opportunity?
Buyers who understand flash pricing trends will do better overall than those who don't. A combination of historical NAND flash price knowledge and some industry insight will help buyers make the best SSD purchases in today's market.
A brief history of flash and memory prices
NAND flash and DRAM follow a predictable price trend: Prices decline over time.
There are fluctuations, and in relatively rare instances, NAND prices do increase -- but for the most part, they decline. If there is a shortage, then they go flat for a while. These trends are clear from the chart below, which shows a history of NAND flash prices per GB from 2004 through 2022 that Objective Analysis derived from the World Semiconductor Trade Statistics.
Since NAND flash accounts for about 80% of the cost of an SSD, the SSD price trend follows NAND flash pricing.
There's a lot of noise in this curve, with prices jiggling up and down in relatively small ways, but on the larger scale, prices go down. Between now and next year, there will be one or two times that the NAND flash price will increase a bit, but the chart below shows that an increase never lasts long and that prices will drop again soon after they rise.
A look at the spot market
Is the most recent NAND flash price drop different from others?
The following chart shows spot market prices, which the press often reports. The NAND flash spot market is a clearinghouse for excess inventory. Buyers who have surprise demand increases but can't get what they want through normal channels can purchase another company's excess inventory. Brokers match up these two sides and help with the negotiations.
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The spot market accounts for a small portion of total NAND flash sales, somewhere below 5%, but it has high visibility. Spot market prices don't accurately represent the market.
Spot market prices differ from contract prices in two ways: They react suddenly to market changes, and the price swings are an exaggeration of the price moves in the contract market. For this reason, it's important to treat these figures with a healthy dose of skepticism. Still, they often are a leading indicator for contract prices: When the spot price goes either up or down, it's likely that contract prices will follow in a more subdued way.
The second chart shows a phenomenal drop in the second half of 2022, from just below 7 cents per GB to about 3 cents. Although the rate of decline is slowing, market conditions make it appear unlikely that prices will increase over the course of 2023. The capital spending of major internet providers has dropped dramatically, and consumer sales were hit by the trifecta of interest rate hikes, China's rigorous COVID-19 lockdowns and the economic consequences of the war in Ukraine.
Don't expect SSD purchases to swing anywhere nearly as dramatically as this curve. However, there is truth to the stories of lower prices.
Why NAND prices collapse
SSD demand was good for the duration of the pandemic, which created a gap between chip production costs and market prices. This trend shows up in the first chart as the flat part of the price curve that runs from 2019 through 2022. Prices were flat when they would normally have declined.
In the commodity memory markets -- DRAM and NAND flash -- market prices tend to flatten when there's a shortage and drop to production cost when there's an oversupply. Prices are dropping to cost, thus the important price drops in this market.
If the market follows its typical dynamic, prices will continue to fall pretty rapidly until they reach cost, and then the decline will slow to an annual rate of about 30%. This will continue until demand catches up with supply. Objective Analysis anticipates this shortage to hit around the middle of 2024.
So through 2024, don't expect the NAND flash prices or SSD prices to rise.
When is a good time to buy?
There's an adage in the nursery business: "The best time to plant a tree is 20 years ago. The second best time is right now." SSD purchases are the opposite: The best time to purchase an SSD is 20 years from now -- imagine what the price per GB will be. The second best time is as late as possible.
The previous charts clearly show that any SSD purchase today is more likely to lose value over time. However, don't purchase a drive today that has five times the capacity needed simply because of a large SSD price drop in the past few months. Prices are not likely to increase, and that SSD will have unused capacity whose value will simply diminish.
When to be cautious
Don't get fooled by small up-and-down movements in NAND flash price. Take note of the following don'ts:
- Don't buy an SSD when prices start to rise. This rise will be short-lived. Patience is key.
- If prices level off, perhaps don't buy an SSD today. Wait a bit and see if prices resume their fall.
- Don't worry if prices double. Although they have risen as much as 42% in the past, such increases are enormously rare and are always short-lived.
Most of all, though, don't stock up on either SSDs or excess capacity, unless that excess capacity will reduce the frequency of upgrades, which can indeed be expensive.