NAND prices drop, but customers won't benefit
Supply chain disruptions, recession fears and war in Ukraine have helped push the price of NAND down sharply, but OEMs may not lower their prices any time soon.
The price per gigabyte of NAND has been in a significant decline since April, coinciding with the rise of inflation, international conflicts and continued supply chain delays complicated by the COVID-19 pandemic. Companies that rely on NAND, however, may see little benefit, according to industry watchers.
Industry experts are not surprised by the price drop, which follows a year of remaining relatively flat. Production levels of NAND have remained high, creating a surplus that is now collecting dust as demand for mobile devices and PCs has waned.
"Everything is just falling through the floor on demand -- and pricing is following suit," said Don Jeanette, vice president of Trendfocus, a market research and consulting firm based in Cupertino, Calif.
With that kind of economic backdrop, NAND and SSD vendors could have a tough few quarters keeping revenue up, he said.
Regardless, this drop in NAND won't result in a drop in SSD prices for end users in the immediate future, experts agreed.
Convergence of occurrences
Current conditions started with a component shortage brought about by supply chain disruptions in China at the beginning of the COVID-19 pandemic, Jeanette said. That struggle to get parts coupled by the increase in inflation over the past year has helped to tamp down consumer spending on PCs and mobile devices, which make up about 25% and 33%, respectively, of the NAND market, Jeanette said.
In its second quarter fiscal year 2022 earnings released in July, Samsung, the largest NAND producer, cited weakened demand for mobile NAND as a reason why shipments fell below guidance. The company added that demand for mobile and PCs will likely continue to be weak for the duration of 2022 and that it will "focus on creating demand mainly for high-density products while considering characteristics of high price elasticity."
In August, Kioxia, the second largest NAND producer, warned investors that the Ukraine war, supply chain disruptions, inflation and a possible recession weakened demand for PCs and smartphones -- and therefore NAND. It also added that, in the long term, data center and SSD demand is "expected to remain solid ... as cloud and enterprise IT system investments continue," according to its first quarter fiscal year 2022 earnings statement.
But, it stated, "In the shorter term, the industry is cautiously monitoring the potential negative impacts on the second half of the year as customers adjust inventory levels in response to component shortages and recession concerns."
Jeff JanukowiczAnalyst, IDC
Compared to the consumer and mobile markets, enterprise SSD demand has remained relatively stable but not enough to avoid a dip in price, according to Jeff Janukowicz, an analyst at IDC, a market intelligence firm based in Needham, Mass.
"The weakness in other market segments will drive down pricing, despite the stronger demand [in enterprise]," Janukowicz said.
Jim Handy, a semiconductor and SSD analyst at Objective Analysis in Los Gatos, Calif., said, "The thing about any memory technology is that the manufacturers for these things set their factories to produce a certain very steady output."
When demand for NAND went up in 2018, so did the price, he said. That demand has dropped off, but the manufacturing of NAND hasn't, leading to an oversupply of the product and resulting in lower prices designed to entice buying again.
This is the normal boom-bust cycle of NAND production, but it has been taken to the extreme due to the complex economic backdrop, Jeanette said. That complexity could create price differences in the market, as SSD vendors decide on their selling strategy.
"There will be a couple who say, '[Never mind] our financials and gross margins and how healthy our financials look, we need to keep driving this revenue line and sell product,'" Jeanette said, adding that NAND prices will continue to decline into next year. "Other companies might say, 'We're under a lot of pressure from our shareholders to show healthy financials; we cannot participate in that price point for that customer because we're going to sell at cost or even at a loss right now.'"
What to expect when you are expecting lower costs
Vendors may also drive NAND products to different sectors to get through the slump in demand. NAND chips can be moved to where the demand is, meaning the same TLC NAND used for consumer SSDs can be used in enterprise SSDs, Handy said.
But he doubted this would result in cost savings for enterprise SSD customers.
"Large OEMs tend to ride through the bumps of the market -- the highs and the lows," he said.
Most OEMs use value pricing, or how much the product is worth to the consumer, not cost-based pricing, or how much the raw material costs. Despite the falling price of NAND, which overall has been at about 30% per year over about 30 years, that likely means the end price will not change much in the immediate future, Handy said.
That isn't to say that NAND pricing won't continue to drop at a steady rate long term and be more attractively priced in the future, Handy said.
Indeed, Janukowicz said that, in the long term, the enterprise demand for NAND will continue to go up as it pushes for petabytes of storage.
Adam Armstrong is a TechTarget Editorial news writer covering file and block storage hardware and private clouds. He previously worked at StorageReview.com.