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The ThinkEquity Partners' report centered on SanDisk, which is not one of the four companies Apple actually buys its memory components from (Samsung, Hynix, Toshiba, and Micron). However, the report says Apple's voracious appetite for flash RAM is affecting the entire market.
The iPhone maker has bought out Samsung's entire available supply, putting the world's largest producer of flash memory on allocation until April 2009, according to the report. Samsung makes just over 40% of the world's NAND Flash RAM.
ThinkEquity also said that it believes Hynix and Toshiba are also "under NAND supply constraints as Apple ramps NAND demand for its next-generation iPhones." However, both companies are facing technical difficulties that are leaving Apple's RAM supplies constrained.
Apple and the NAND flash RAM market
The report cited surging short term spot prices for 8Gb and 16Gb components, although the higher component prices as noted in the report relate to lower-end parts that memory manufacturers are phasing out, causing the price for those parts to rise as their supply fades.
Apple primarily buys higher capacity 64Gb and 128Gb parts (128Gb is 16GB). The company also maintains long term volume contracts for flash RAM components, isolating it from temporary fluctuations in the spot market.
Apple's position in selling tens of millions of iPods gives it the ability to cherry pick components at prices many competitors can't match. Apple has specifically noted favorable component pricing as a key factor in the company's profitability over the last several quarters.
The volatile non-volatile RAM market
Last year, iSuppli reported that Apple had become the world's largest OEM buyer of NAND flash memory, buying $1.2 billion worth of parts for its iPods and the iPhone in 2007, over 13% of global production.
The demand for ever greater storage, combined with NAND's relative simplicity, has resulted in rapid technological progress in delivering ever larger parts with regularly falling prices. Average selling prices of NAND flash fell 63% in 2008, and that came on top of rapid declines in flash prices over the previous two years that caused some manufacturers to shift production to other more profitable types of memory, such as DRAM. Sales revenues in the NAND market fell from $13.4 billion in 2007 to $11.4 billion in 2008.
After iSuppli issued its warning a year ago this month that said Apple had deeply cut its demand for Flash RAM, Samsung reduced its capacity in April and May. Large new orders from Apple for the iPhone 3G then ate up most of Samsung's available production, causing the company to reduce the supply to other manufacturers, according to a report in DigiTimes.
The RAM hungry iPhone
Apple has historically put more RAM capacity in its iPhone than other smartphone vendors. The original model offered 4 or 8GB at a time when virtually no other smartphones gave users more than 128MB, then the typical high-end limit for many mobile operating systems.
Even so, Apple found that its customers were only buying the 8GB model, resulting in a quick drop of the 4GB version and the introduction of a new 16GB iPhone within a few months. Apple also packs 32GB into the high end iPod touch.
Apple's emphasis on iTunes-integrated music and videos for the iPhone, including full length movie playback, also resulted in a device equipped to store lots of mobile applications with a level of sophistication well above that of most smartphones. Other phone manufacturers are now following Apple's lead in packing phones with multiple gigabytes of flash storage.
Finding enough flash RAM supply may become more difficult as Apple continues to eats up an increasing volume of the world's supply of memory parts, even as the global economy cools and production is cut back.