Apple Signs Long-Term Pact with Toshiba for Flash Chips

By Chris Preimesberger  |  Posted 2009-07-22

Apple, maker of the iPods and iPhones that are sucking up large quantities of NAND flash chips practically by the minute, announced July 22 that it has entered a long-term agreement with Toshiba for Toshiba to keep supplying even more of those chips.

Computer and mobile device maker Apple obtains its NAND flash chips from a number of different sources. The new agreement with Toshiba, the length of which was not disclosed July 22, will augment Apple's already high intake of the solid-state processors.

Apple reported July 21 that it has sold 5.2 million iPhones, which use solid-state flash disks for storage and computation, during the last three months. Sales of iPods were down slightly, but still substantial at 10.2 million units sold.

The popularity of both devices is quickly helping to clear warehouses-some of those belonging to Toshiba-of an oversupply of NAND flash memory that has had the industry in red ink for about a year.

Apple's contract with Toshiba, the world's second-largest supplier of NAND flash processors, should serve as a major boost for the Japanese chip and device manufacturer. The company has been hit hard in its flash business by financial losses in the last two years due to cutthroat price competition with the No. 1 supplier, Samsung.

Toshiba may have seen this deal coming as early as 2008, expecting a production ramp-up. Longtime partners Toshiba and SanDisk announced an agreement Oct. 20 that turned over 30 percent of SanDisk's flash production to Toshiba in exchange for $1 billion.

$500 million down payment

According to a transcript of Apple's quarterly results conference call with analysts on July 21, Apple made a $500 million advance payment to Toshiba to get the new deal rolling.

"The market for DRAM [dynamic RAM] and the market for large-size LCDs has shifted to a constrained environment, and the pricing has moved accordingly," Apple Chief Operating Officer Tim Cook said on the conference call. "The NAND market has now begun to stabilize, and we expect it to move towards a supply/demand balance."

"This is probably a good indication of what Apple thinks is happening in the NAND market," solid-state disk market analyst Jim Handy of Objective Analysis told eWEEK. "NAND prices are about double what they were in January; they were essentially selling below cost back then. Now they are selling at a price that probably matches cost for your average player.

"Apple is locking down the price before it goes up again. They might be a little bit late, but that's what it looks like they're trying to do."

Toshiba itself is ramping up its use of SSD flash chips. On May 14, the Japanese chip and device maker unveiled the industry's first flash-powered half-terabyte laptop, the Portege R600-ST4203, which features a second-generation 512GB eSATA SSD from Toshiba's own fabrication plant.

Editor's note: This story was updated to include additional analysis.

Rocket Fuel