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Friday, April 27, 2007, 09:00 am PT (12:00 pm ET)

Apple scrambling to secure more NAND flash ahead of iPhone

An existing $1.25 billion dollar arrangement between Apple and the world's largest memory makers was designed to secure the iPod maker an ample supply of NAND flash memory through 2010, but Apple is now reported to be asking for even more chips ahead of iPhone.

Taiwan-based DigiTimes, which wavers in accuracy but has recently nailed a scoop or two, is reporting that Apple has been in talks with Samsung for the purchase of a volume of NAND flash to be used in all iPods and iPhones from June to year-end.

The report cites "sources" in saying Apple is asking for 400 - 500 million 4Gbit NAND flash equivalent chips, which is approximately 10 to 15 percent more than the two firms had agreed upon earlier.

Back in Nov. of 2005, Apple formed long-term supply agreements with Samsung, as well as Hynix, Intel, Micron and Toshiba, to assure that it would maintain ample supplies of NAND flash memory through calendar year 2010. As part of the deal, Apple prepaid each manufacturer $250 million, for a total of $1.25 billion.

According to DigiTimes, Samsung is not 100 percent sure its capacity can meet Apple's revised orders. The South Korea-based semiconductor firm is similarly concerned that an oversupply for NAND flash chips may occur if the sales of iPod and iPhone products are not as strong as expected.

According to the report, Apple has also requested that Hynix increases its supply of NAND flash for the third quarter. Hynix, however, is said to be struggling to meet existing demand as it stands.

Word of Apple's request comes just weeks before Apple chief operating officer Tim Cook is expected to sign off on the initial manufacturing ramp for the company's first mobile handset. The iPhone device will be available in both 4GB and 8GB capacities, retailing for $499 and $599, respectively.

Apple has asserted that it hopes to snag about 1 percent of the approximate 1 billion-unit global mobile handset market through 2008, which would translate into the sale of about 10 million iPhones over the next 18 months.

For their part, most analysts on Wall Street appear somewhat skeptical of the aggressive sales goal and have been modeling conservatively for the company to sell only several hundred thousand units between June and year's end. That would leave Apple just 12 months to meet the greater portion of its sales target.

Renewed talks between Apple and NAND flash suppliers may imply that Apple's aspirations for iPhone sales are now exceeding even its own self-imposed benchmark for success.