Electronics Production | August 14, 2007

Samsung Capitalizes on Improved<br>NAND Flash Market Conditions in Q2

Samsung Electronics Co. Ltd. in the second quarter managed to capitalize on strong conditions in the NAND flash memory market to pad its sales lead over Toshiba Corp., according to iSuppli Corp.
The South Korean electronics giant's global NAND flash memory revenue amounted to $1.4 billion in the second quarter, up 18.9 percent from $1.2 billion in the first quarter. This gave Samsung a global NAND market share of 45.9 percent, up nearly two points from 44.1 percent in the first quarter.

Samsung's robust increase in NAND sales, combined with a relatively weak performance by Japan's Toshiba, gave it an 18.4 percentage point market-share lead over its Japanese rival,
up from 13.4 points in the first quarter.

With an 18.9 percent increase in revenue, Samsung handily outgrew the overall NAND market, and outperformed its two closest competitors, Toshiba and Hynix Semiconductor Inc. of South Korea.

“Samsung's strong performance in the second quarter was due to its 11 percent growth in bit shipments," said Nam Hyung Kim, director and chief analyst for memory ICs/storage systems at iSuppli. “This major increase in shipments was due to Samsung expanding its sales to consumer applications including Apple's iPhone and iPod lines. Meanwhile, Toshiba increased its bit growth by only 2 percent due to its initial process migration to 56nm. However, iSuppli expects Toshiba's 56nm production yields to improve, causing its bit shipments to rise by more than 30 percent this quarter."

Hynix also experienced a negative 4 percent growth in NAND bit shipments due to its difficulties of process migration to 60nm.

iSuppli believes that Hynix will recover its market-share losses during the third quarter. The company has an aggressive goal of increasing its sequential bit production growth by 100 percent in the third quarter. The company since June has been shifting its DRAM capacity on its 300mm fab line to NAND in order to achieve this.

Therefore, Hynix's output growth in August is expected to bring a significant easing of the tight NAND supply situation.

Micron Technology Inc. and Intel Corp. of the United States have been increasing their NAND flash sales since the establishment of their IM Flash Technologies LLC NAND flash joint venture in January 2006. Intel increased its NAND bit shipments by 75 percent during the quarter, while Micron achieved a 72 percent rise. This gave Intel industry-leading NAND revenue growth of 62.5 percent compared to the first quarter, while Micron rose by 46.4 percent.

The table attached presents iSuppli's NAND-flash memory revenue market-share estimate for the second quarter of 2007.

Global flash memory revenue rose to $3 billion in the second quarter, up 14.4 percent from $2.6 billion in the first quarter. This represented the strongest sequential quarterly growth for global NAND market revenue since it rose 21 percent in fourth quarter of 2005. The second-quarter rise built on a 21 percent decline in global NAND revenue in the first quarter, which brought to an end a six-month period of market weakness.

NAND supply tightened in the second quarter as manufacturers slowed their production growth. This caused the Average Selling Prices (ASPs) and revenues to rise for the NAND flash suppliers.

Total NAND bit shipments increased by 9 percent in the second quarter, down from the stunning 32 percent rise in the first quarter. The global megabyte ASP increased by 5 percent during the second quarter.

Both the revenue and ASP increases conformed closely with iSuppli's predictions.

The slowing in production growth had been expected after the NAND industry suffered the first negative operating margin in its history in the first quarter. In reaction to these poor market conditions, suppliers slowed their production growth in the second quarter, tightening availability. Furthermore, process migrations to smaller geometries restrained production output from growing at
the same rate it had in previous quarters.

The NAND flash market hit the bottom in the first quarter and began to recover in the second, as iSuppli predicted. With the trough behind it, the market has been on a recovery path ever since. Because of this, memory suppliers' financial performances should be much better in the second half of the year than in the first.

In fact, NAND prices have been on the rise for a much longer period than expected. iSuppli had anticipated the price hike would evaporate shortly after the start of August due to strong industry bit growth. However, the timing of the power outage at Samsung's NAND fabs in early August came just as the market was about to shift into a state of oversupply. This has constrained supply and is helping to buttress the ASP.

Although Samsung doesn't expect a meaningful loss of wafer production, iSuppli believes its output shortfall could represent about 10 percent of Samsung's monthly wafer output, which equates to roughly 1 percent of global NAND output during this quarter.

iSuppli believes the outage could benefit Samsung‚ÄĒand ironically, Samsung's competitors, by helping to increase NAND prices. The tight supply situation could be extended through the end of August.

Therefore, iSuppli has upgraded its global 2007 NAND flash revenue growth forecast to the 10 to 15 percent range, up from the previous prediction of flat growth.
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