Will iPod and iPhone feel the heat from Samsung’s flash shortage?

August 3, 2007, 9:40 AM UTC

Apple’s (AAPL) iPod and iPhone production plans for the second half of the year could hit a snag, after top memory supplier Samsung reported a power outage that will crimp its flash production for as long as a month. [UPDATE: research firm iSuppli reports Samsung’s production could be back online by noon Seoul time on August 4.]

The Associated Press reports that a spark in an electrical transformer caused a power failure on six chip-making lines at a plant near Seoul. Five of the six lines make memory chips. AP quoted an analyst in Seoul saying it would take at least a month for Samsung to restart the lines, a delay that will cause global supply problems and push up flash prices. [See update above; actual downtime could be less than two days.]

That’s bad news for Samsung and for Apple. Apple uses flash memory in its both of its iPhone models, in its iPod shuffle and bestselling iPod nano. Only the largest, highest-capacity iPod, which starts at $249, uses a hard drive rather than flash.

Flash renaissance

Other flash suppliers are likely to benefit from Samsung’s misfortune. SanDisk (SNDK) reported two weeks ago that it already expected flash prices to firm up in the second half of this year, after oversupply in early 2007 had dented profit margins industrywide. The Samsung news will only push flash prices higher, boosting profits for flash makers like SanDisk, Micron Technology (MU) and Intel (INTC), and hurting Apple’s bottom line.

The Samsung outage comes at a time when consumer electronics and PC makers are increasingly reliant on flash memory for the kinds of storage tasks that were once the province of hard drives, tapes and optical discs. Dell (DELL) gaming subsidiary Alienware recently began using flash in combination with hard drives for laptop storage, in a trend many expect to accelerate in the PC industry. Also digital camcorders, which were once a tape-centric business, are shifting to hard drives and more recently to flash as a way to store footage.