What's Behind Apple's Memory Buying Spree?
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Reports are claiming that Apple recently bought up 100 million pieces of 8Gb flash memory, enough to cause a temporary shortage on the market and cause prices to spike on the worldwide market -- and more than enough to raise eyebrows among Apple-watchers.
One of the longer-running rumors around the iPhone is that Apple (NASDAQ: AAPL) would eventually release a 32GB version. Apple launched the iPhone with 4GB and 8GB units, and in its second generation moved up to 8GB and 16GB of capacity. But the company has a 32GB iPod Touch, so it certainly knows that form factor.
One hundred million chips is a huge amount, enough to cause a temporary price spike. If the report, from Taiwanese tech publication DigiTimes, is accurate, most of the order went to Samsung, the largest memory maker in the world. Other memory makers have been cutting back their production, so Apple's order on top of that really drained the supply. Further credence for the theory comes from DRAMeXchange, which follows memory prices, and which noted a 16 percent price increase in memory following the Apple order.
It's happened before, noted Jim Handy, president of Objective Analysis. "Apple tends to make these gargantuan purchases. I know in the past year there have been occasional buys from Apple that have driven the price [for memory] up," he said.
But he also notes that memory makers like Toshiba and Hynix have been cutting production and raising prices.
"Our estimate is the manufacturing cost for a 45nm flash wafer is about $2.5 dollars per gigabyte, and they've been selling for $1 per gigabyte," Handy told InternetNews.com. "The recent increase to $2 is these guys waking up realizing 'Hey, we're wrapping dollar bills around every chip we sell.' This is typical of an oversupply. Prices come down too far and then pop back up to cost."
While 100 million chips sounds impressive, once you start to divvy it up for final units, it's not. Assuming the report is accurate, those 8 gigabit chips are 1GB in capacity. If Apple does indeed plan a 32GB capacity iPhone, then it will need 32 chips per phone.
That comes out to 3.125 million phones, a reasonable number for a launch. In fact, it might be a little low given how popular the iPhone is, although a 32GB phone is not likely to be cheap. The 16GB iPhone sells for $599, or $299 with a two-year contract with AT&T.
That math also doesn't take into consideration that another rumor making the rounds on the Apple and mobile phone blogosphere is there is a second iPhone in the works, the oft-rumored "mini iPhone." This would be a low end phone with less horsepower and memory than the current one on the market.
Still, if Apple releases a 32GB high-powered iPhone, is it a phone or a netbook, asks Bob Merritt, principal analyst with Convergent Semiconductors. "This falls into what's a netbook, in that is has the netbook capability in a phone with 32 gigabytes of memory. This puts it into the low-end scale end of the netbook or the high-end scale of the cellphone," he said.
It also is typical of Apple's modus operandi of "not doing cheap," as company executives have said -- preferring instead to focus on higher-end, higher-margin offerings. Instead of taking the notebook and whittling it down to a netbook, Apple seems likely to take a mobile phone and push it up into the gray area between netbooks and smart phones, Merritt said.
"That's the part that hasn't been explored yet," he said. "We know what's happening with the stuff with a keyboard. There's plenty of vendors in that space. But the space between there and the cell phone side has yet to be explored. But a 32GB phone would certainly explore it."