Toshiba Corp's ambition to become the world's biggest maker of flash memory chips, mainly used in small gadgets, may herald a showdown in the chip industry, as flash enters a PC market dominated by hard disk drives.
Toshiba, which lost the home movie DVD war to rival Sony Corp, plans to invest almost $16 billion to boost its flash memory business, betting the market for NAND chips in laptops could be huge in a just few years time.
"NAND demand from PCs will account for less than 5 percent of total demand this year, but the number should grow quickly to reach 10-15 percent in 2009 and some 25 percent in 2010 onwards," said Park Hyun, an analyst at Prudential Investment and Securities. "I think Toshiba made a reasonable decision to bet on this."
In the meantime, Toshiba will likely face a tough battle against rival and world No.1 flash chip maker Samsung Electronics South Korea's Samsung overtook Toshiba as the world's top maker of memory chips in 2002.
"Toshiba has been very vocal about reclaiming the lead in the memory business," said Kim Young-June, an analyst at Kyobo Securities.
In a industry marked by cycles of booms and busts, Toshiba's plans could flood the market with too many flash chips, further driving down prices.
Yet it is this very price fall that could make flash memory drives more attractive to PC makers in the medium term.
Toshiba, at the same time as bowing out of a technology standard war in home movies, said earlier on Tuesday it was investing 1.7 trillion yen to boost output capacity for the chips.
The Japanese company, together with its U.S. partner SanDisk Corp, will build a new flash memory plant and have plans for building another one.
From March, Toshiba will have the capacity to make the equivalent of 240,000 wafers a month, which could rise to 410,000 wafers in the middle of 2009 if a recently build plant hits full capacity.
Toshiba expects capacity at the new plants of about 150,000 to 200,000 a month -- which means its total output could more than triple to up to 810,000 wafers a month.
MORE PRICE DROPS
Makers of flash memory are struggling under the weight of massive oversupply, caused in part by the effects of a year-long market share war between the makers of DRAM chips, used mainly in PCs.
In order to defend their prices, which in some cases have dropped more than 90 percent, DRAM makers diverted production capacity to NAND flash production, flooding the flash market with stock.
The average price of flash chips is expected to drop by 35 to 40 percent in the first quarter 2008 alone.
Flash memory is increasingly seen as the next preferred technology in laptops, as PCs powered by flash drives are faster and lighter.
But cost has been an issue since they are still up to ten times pricier than the traditional, rotating hard drives.
"If NAND prices fall sufficiently, the price differential between a traditional hard drive and a flash drive could go from 10 times to 4 or even 3.5 by mid-to-end 2009," said Kyobo's Kim.
The growth potential of the so-called solid-state drive (SSD) could be staggering, analysts said.
"In the short term, there is going to be an excess production and supply of NAND," said Tetsuro Miyachi, senior portfolio manager, Franklin Templeton Investments Japan. "But in the long term, there is no doubt that NAND demands are going to expand. I think this was the right decision."
