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Apple Accused of Manipulating Flash Memory Prices

Monday November 30, 2009 7:06 am PST by Eric Slivka
The Korea Times reports on growing complaints within the flash memory industry that Apple, which holds a dominant position due to its extensive use of flash in the iPhone and iPods, is using its increasing leverage to inappropriately manipulate the market to its advantage.

The summary of the arguments goes as this -- Apple is contributing to the suppression in flash memory prices by ordering more chips from semiconductor makers than the amount it actually buys from them.

Apple's strategy reportedly involves requesting that memory manufacturers produce a certain amount of flash memory, but ultimately purchases a lesser amount than that requested. The reduction in purchase amount relative to industry projections based on Apple's supply requests creates an oversupply of the flash chips, driving prices down and allowing Apple to lock in its orders at a lower price as suppliers compete to unload their chips.

"Apple should certainly be blamed for deteriorating the supply and demand cycle in the global NAND flash market," a senior industry official told The Korea Times, refusing to be named.

"Apple has asked Korean semiconductor makers to produce a certain amount of chips for its digital products, only to actually purchase a smaller volume eventually. The company doesn't make immediate purchases, but waits until chip prices to fall to the level the company has internally targeted."

The report notes that there is little that leading flash memory manufacturers Samsung and Hynix, who provide the chips to Apple, can directly do for the moment to combat Apple's strategy. Apple's tactics, however, are likely to erode relationships with the third-party suppliers it relies on for its devices, suggesting that it may not be a viable long-term strategy and may be an attempt by Apple to boost its ability to offer price-competitive devices in the short-term ahead of continued expansion of offerings from other platforms such as Android.

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