Business

Saturday September 19, 2009

Orders rising for flash memory, HDD productS

By DAVID TAN


FLASH memory and hard disk drive (HDD) components manufacturers in Malaysia are expecting more orders next year due to new applications of flash memory and the growing popularity of the mobile segment.

Index Diversified Sdn Bhd, the owner and producer of PenDrive brand of flash memory products, expects to raise monthly production of flash memory products to 250,000 to 300,000 units next year from 150,000 to 200,000 presently, according to managing director C.H. Low.

C.H. Low

Eng Teknologi Holdings Bhd also expects to raise monthly output next year by over 15% from about seven million to eight million, comprising HDD base plates and actuators, chief executive officer Datuk Y.K. Teh said.

Dufu Technology Corp Bhd also aims to increase its monthly output of higher value HDD components next year.

“Presently, the monthly production has an estimated value of about RM8mil and RM9mil. Next year, we will expand monthly output of components which will have a value that is 10% higher,” chief executive officer P.Y. Yong said.

Dufu produces HDD components such as spacers and clamps at its 120,000 sq ft plant in Bayan Lepas, Penang.

Besides digital cameras and smart phones, lighter and smaller notebooks requiring flash memory products would also drive up the demand for flash memory.

For HDD, the growing popularity of mobile computers would generate the demand for the 2.5-inch and 1.8-inch HDD.

There will, however, be a shortage of flash memory next year as key NAND flash memory producers have reached their production capacity limits but held back on expansion plans due to the economic crisis that started late last year, according to Low.

“To expand a wafer fabrication for NAND flash memory takes time and the demand is already here,” he added.

Flash memory products produced under the PenDrive brand name by Index Diversified.

Despite the shortage, flash memory products would not see a price increase next year as technology advances had enabled higher density flash storage to be produced at a lower cost, he added.

While monthly shipments in the first six months had sustained at between 150,000 and 200,000 units compared with the previous corresponding period, the drop in the average selling price had caused his company’s revenue to fall by about 30% since January, Low said.

The wholesale price for a 32GB flash memory has stabilised at around RM245 for the past three months, while the wholesale price for a 2.5-inch 320GB HDD has dropped to about RM200 from RM225 in June.

To counter the trend of falling flash memory prices, Index Diversified has to increase its business volume in the region.

“The flash memory is a ‘volume game’ business which cannot draw only on domestic support. Flash memory requires strong marketing channels and networks that can only be found in a regional market like South-East Asia,” said Low.

“Local companies supporting the flash memory industry in Malaysia should move out of Malaysia to compete.

“Our goal is to strengthen PenDrive’s market share in South-East Asia in the next one year as the brand would not be able to survive in a country of 24 million population.”

The key manufacturers of NAND flash memory, the main raw material of flash memory products, include Toshiba, Samsung, Hynix, Micron and Intel, which also play a role in determining the pricing of flash memory.

Index Diversified assembles flash memory products at a surface mount technology facility in Klang.

It sources flash memory chips, integrated circuits and components from Phison, a Taiwanese electronics company that primarily manufactures controllers for NAND flash memory chips.

Meanwhile, Teh said the Eng group was increasing its monthly output next year to meet the rising global demand for HDD.

“In the second quarter of 2009, the global demand for HDD increased by 17% to 131 million units compared with the first quarter.

“For the third quarter, a HDD research company in the US has revised the projected demand to hit 145 million units, or 10% growth over the second quarter,” he said.

“If the increased demand continues into the fourth quarter, the global consumption of HDD in 2009 could even exceed 540 million, which was the amount consumed worldwide in 2008.”

He added that the pricing per gigabyte would continue to drop, but the price for a higher density HDD would not drop significantly.

On whether the flash drive was a threat to the HDD market, Teh said the flash drive had improved both on pricing and storage capacity.

“However, the shipment and acceptance in the market is still very small, as 927,000 units were shipped in the second quarter of 2009.

“The storage capacity versus pricing is still very much in favour of HDD compared with flash,” he said.

Teh said group revenue and profit for 2009 would be slightly down against 2008’s figures due to slower sales in the first quarter.

“But for 2010, we expect sales to improve and will allocate a slightly bigger capital expenditure to upgrade our operations than the RM15mil budgeted in 2009,” he said.

Meanwhile, Yong said Dufu’s acquisition of Futron, a Hong Kong-based HDD components manufacturer, in late 2008 fitted nicely into its business plan to increase market share in 2010.

“Futron, with a 90,000 sq ft facility in Guangzhou, has a low operating cost structure that would allow the group to generate better margins for its HDD components,” he said.

Yong said the biggest challenge for the HDD market was the strength of the US economic recovery, which depended on consumer spending.

“Consumer spending in the US looks weak at the moment, but we expect the HDD industry to be resilient and recover quickly.

“The demand for HDD is being increasingly driven by the need for storage for Internet-based applications, as well as technological advances and innovation for consumer electronics products.

“Global Internet penetration is rising and web-based applications such as blogs, social networking and e-mail are gaining popularity, irrespective of economic conditions,” he added.

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