Samsung to match Flash / harddrive pricing for Apple?

El Segundo (CA) - Rumors that Apple may soon replace the harddrive in the iPod mini with Flash memory gained substantial weight on Friday with an analyst saying that Samsung may drastically slash prices for its Flash memory products - potentially by up to 50 percent.

Apple's iPod continues to shake up large parts of the IT industry. The sheer volume of the firm's portable audio players makes Apple an attractive partner for component suppliers - and the next deal with a major impact on the storage and memory industry apparently isn't that far off.

According to Nam Kim, director and principal analyst for iSuppli's Memory ICs/Storage Systems research department, Samsung may be wooing Apple to convert parts of the iPod product line from using harddrives to Flash memory products. Apple already has booked as much as 40 percent of Samsung's NAND Flash output to support the production of 512 MByte and 1 GByte iPod Shuffle devices. To extend this relationship, Kim said that he believes that "Samsung has committed to Apple that its NAND products will match harddrive pricing."

In order to replace the 4 GByte harddrive in the iPod mini, Samsung will have to reduce pricing of its 4 GByte Flash by about 50 percent. And Kim believes that Samsung is the only Flash manufacturer that is capable of taking such a step. "Samsung is the world's largest and dominating NAND Flash manufacturer with a market share of about 55 percent. Q2 profit margins of the company were about 45 percent. That is much more than other Flash suppliers can achieve."

According to the analyst, Apple has approached Hynix in order to extend its Flash supplier base, but Hynix hesitates to deliver its memory products to Apple. "Pricing is a huge issue for them. They likely cannot match what Samsung offers."

Samsung's market dominance in the Flash market will dramatically increase, if Apple will switch to Flash in the iPod mini. However, such a strategy change will not only affect the Flash industry, but also impact Seagate as the main harddrive manufacturer for the iPod as well as the DRAM landscape: "Apple's huge demand for Flash may force Samsung to shift production capacities in favor of Flash," Kim said. "This could result in price increases for DRAM."

While the analyst believes that Samsung's strategy to lower Flash pricing aims at stimulating consumer demand for Flash memory in new segments - such as cellphones - he also said that it is certainly a tool to keep competitors such as Hynix and Infineon from gaining ground in this market: "Pricing is a very powerful weapon."

Samsung did not comment directly on a possibly substantial Flash price cut to open the door to more iPod sales. Spokesperson John Lucas, however, confirmed that Flash pricing is based on consumer demand and will continue to drop: "The historical trend has been for Flash memory to drop in price 30 - 40 percent per year. Pricing for memory reflects prevailing market conditions and customer volume needs while assuring an acceptable return on investment," he said.