In a surprise announcement Toshiba has said that it will immediately cut NAND flash production by approximately 30%. The company explains that this is being done “to reduce inventory in the market and improve the overall balance between supply and demand.” Toshiba’s release implies that this move is expected to improve prices, which have dropped as low as $0.31/GB recently.
By common measures of market share, which typically leave out SanDisk (for reasons too complex to discuss here) Toshiba holds a share of roughly 30% of the NAND flash market. By cutting its output by 30% Toshiba would be reducing overall NAND supply by 10%. If we were to include SanDisk, then that percentage would decrease to about 7.5%. Either one of these is significantly more than today’s oversupply, which Objective Analysis estimates is well below 5%.
Commodity memory markets are extraordinarily sensitive to oversupplies and undersupplies; only one or two percentage points separate a difficult glut from a critical shortage.
The company’s release did not mention SanDisk, but a quick call verified that this is a production cut for Toshiba’s own flash and does not impact SanDisk’s share of the two companies’ joint venture fabs’ output. Ironically SanDisk said in last Thursday’s earnings call that the supply/demand balance, from SanDisk’s viewpoint, improved in the latter part of Q2 and is on track to continue to improve.
One thing working in Toshiba’s favor is its cost structure. The Toshiba/SanDisk 19nm process gives these companies a small 130mm² die size for its 64Gb NAND chip, which is slightly larger than the Intel/Micron 118mm² die size, but is smaller than all other manufacturers’ parts. This should allow Toshiba to be more profitable than Hynix and Samsung, and implies that reducing production will hurt Toshiba less than it would these others. Keep in mind that any company that reduces its output will have less unit volume over which to defer its amortization, pushing costs up. We understand that capital depreciation accounts for roughly half the cost of processing a wafer in a commodity memory fab operating at full production capacity. If this is true, then cutting output by 30% would push Toshiba’s cost structure 21% higher than today’s level. That’s a pretty costly decision!
The Memory Guy will be watching carefully to monitor the impact of Toshiba’s decision, sharing what I learn with my readership.
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