Memory Module Makers Under Pressure as Cloud Storage and iPhone Challenge Their Product Strategies, According to TrendForce

Traditional memory module manufacturers are currently facing challenges in shipping memory cards and flash drives, according to the latest analysis by DRAMeXchange, a division of TrendForce. These products, which are major sources of revenue for these companies, are struggling the market due to the rise of cloud storage services and the increasing emphasis on high-density flash storage design that is driven by Apple’s iPhones. The industry players will inevitably have to pursue a product diversification strategy as a result.  

“The growth of cloud storage and streaming music are taking care of consumers’ previous needs for flash drives and memory cards,” said Sean Yang, assistant vice president of DRAMeXchange. Companies such as Dropbox, Evernote and Spotify are some of the rising stars in the cloud service industry. Their successes also encourage heavy investments from the established IT powerhouses – Google with its Google Drive and Google Photo; Microsoft with its One Drive and Office 365; and Apple with its iCloud and Apple Music. 

“Furthermore, the gradual completion of the global telecommunication infrastructures and increasing penetration of 4G LTE technology mean faster and cheaper Internet for consumers” added Yang. “This in turn significantly decreases the likelihood that people will continue to purchase flash drives. On the whole, memory module makers are very worried about market saturation and decline when they are planning for their next flash drive products.” 

Development trends of handheld devices are also affecting the memory card market. Smartphone and tablet makers are following the footsteps of Apple’s iPhone and iPad, omitting memory card slots from the design of their future devices to make products thinner and lighter. The consumer demand for high-capacity eMMC/eMCP products is also rising due to the higher memory requirements of the latest Android OS, apps and smartphone hardware (i.e. upgraded displays and cameras). The storage capacities of eMMC/eMCP products are also increasing. The average capacity of eMMC/eMCP storage for smartphones has reached 20GB in 2015, representing a huge 60% increase over the previous year. As the memory card demand from the smartphones reaches saturation, manufacturers have started to compete in other retail markets, where their products will be used for consumer electronics such as digital cameras and GPS devices. Nonetheless, the growth momentum of memory cards will not be as strong as it once was. 

Facing growth challenges with products that traditionally have higher revenue ratios, module makers are gradually diversifying their operations by taking the following steps: 

1. Accelerating the introduction of Client-SSD products: Advances in NAND flash manufacturing, such as the migration to 10 nm level and even the implementation of 3D-NAND technologies, have brought down the costs of NAND flash considerably and raises the consumers’ acceptance of SSD products. DRAMeXchange forecasts the SSD notebook penetration will exceed 30% in 2015, and module manufacturers are expected to speed up development of Client-SSD products. 

2. Expanding value-added industrial SSD product lines: As the competition in the Client-SSD market intensifies, module makers that have firmware design capabilities and industrial market channels are shifting their focuses on industrial SSD products. 

3. Developing more products for mobile applications: Besides memory cards, module manufacturers have also begun developing other mobile-related accessories, such as USB On-The-Go or Type-C products. They are banking that the impressive market growths of iPhone and other branded smartphones will raise visibility of their memory products. 

Yang further indicates that macroeconomic factors will affect the NAND flash market demand in the second half of this year. As the global financial market is experiencing a downturn, OEM system vendors of smartphones, notebooks and tablets have begun lowering shipment forecasts. The weak consumer market has also made module companies more conservative towards the retail markets for memory cards and flash drives during the next two quarters. The contract prices for MLC-based NAND flash memory started to drop in the latter half of June, with an average decrease of 1%. The TLC prices also fell by 5~10%. With the market outlook becoming more cautious, DRAMeXchange expects the prospect of declining NAND flash memory prices in the third quarter to increase significantly.