Flash memory chip shipments slid almost 12 per cent in November, and prices have also slumped, in the sector's worst setback since early 2005, semiconductor analysts report.
The downturn is particularly notable because it comes against a backdrop of surging sales of other chips, in particular DRam memory.
As Flash shipments slid downwards in recent months, prices also fell. "Spot prices for 4Gb Nand Flash modules fell 24.5 per cent from the second week in December to the second week in January," said analysts at Nomura Securities of Japan in a quarterly semiconductor industry report published this week.
Michael Hoosik Min, a Seoul-based analyst with Korea Investment and Securities, added: "The large price drop occurred as supply volumes have not decreased, with no new killer applications available."
The downwards trend is expected to continue as manufacturers are still investing heavily in expanding output.
For example, Toshiba, one of the world's leading Flash makers, yesterday announced a new Flash chip that packs 16Gb of memory into one tiny package, more than ever before achieved in a commercial product.
The new chip, developed in conjunction with memory vendor SanDisk, is slated for mass production in mid-2007. Toshiba did not release anticipated pricing details.
While the current downturn is painful for the industry, observers still believe it will be relatively short lived.
"We expect growth in the Nand Flash memory market to pick up again in the second half of 2007 as the range of applications expands," said Nomura analysts this week.
During 2007, Flash memory is expected to begin to usurp the role of the hard disk drive in some products. This trend is seen as one of the key drivers of current heavy investment in Flash memory production capacity.
Manufacturers are demonstrating increasingly large Flash memory-based storage devices, some as slot-in replacements for traditional hard disk drives.
Recent products have reached 32GB in size, roughly equal to the average hard drive at the time Microsoft's Windows XP was launched.
"These products will certainly offer mid- and long-term growth momentum to the semiconductor market," said Min.
However, the analyst stressed that explosive growth is not expected soon, because products with many gigabytes of Flash memory remain prohibitively expensive.
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