Fluctuating prices of Flash Memory – Commodity or a Scam?

by Nick on September 15th, 2009

Hello again folks.

Today I am going to talk about something that makes our sector of the promotional industry different from every other. Unlike pens, hi-liters, rulers, letter openers, and other throw-away items, USB drives are always on the move. Where the former have had the same pricing since the dawn of time, USB pricing is always fluctuating. NAND Flash Memory chips and USB Controllers, (the guts of a USB drive) are a commodity available in many grades and subject to the same set of rules as wheat, corn, even gold. Chips are cut from silicon which is a fluctuating commodity in and of itself. They are also born of various chemical compounds, both natural and synthetic. Like any natural and refined resource, there will be times when essential components are scarce. Whether this is a legitimate lack of supply, or generated we will never know, but nevertheless it affects us, the consumer, in the end. And, just like the big oil companies, the big players in flash memory manufacturing, (Samsung, Toshiba, Hynix, Micron) control the market.

Now, granted our friends in the “cheapie” side of promotional items have their fluctuation problems too, but when was the last big jump PLASTIC took? I can remember the great “glow-in-the-dark” ink price hike of ’89 that drove HiLiter prices so high that office managers everywhere were rationing them out like gold coins. Just kidding, folks. Can you sense the sarcasm? My point is, the only change you will see on that side of the industry is good old inflation. Not so in our neck of the woods. Welcome to the land of USB.

The Ugly Truth

Well, as I write this today, we are in the throes of yet another NAND Flash Memory price increase. Once again, I have to reach out to my potential customers and explain how the price I quoted them not three days ago, (sometimes it’s a daily occurrence) can no longer be honored. Even though we only saw a small increase today (about 3%), it is never easy to tell a customer that prices have gone up. I find myself sounding like a broken record.

You see, when I started in this business, things went the opposite way. Back in ’06 prices were ridiculously high for USB drives, being a relatively new form of media storage. A 64Mb drive would cost upwards of $15.00 a pop for orders of 100 units or more, and a 1gb drive….FUGHEDABOUDIT! As time passed into 2007 and 2008, and as technology and storage capacity needs increased, we saw prices start to fall. The smaller capacities were becoming obsolete in the retail sector and the promotional USB business was really starting to grow. By the end of 2008, Flash Memory prices were at an all time low and the big manufacturers were pumping out flash chips in record numbers. By the beginning of 2009, the price of a 64Mb flash drive was about $4.00 for a 100 unit order, customized with a logo imprint, data preloading, shipping, the works. Needless to say, this was quite a busy time for us and as a salesman I was finding it quite easy to fulfill my monthly quota. Then something happened…

2nd quarter, 2009. News on the wire came whispering about a big deal in the works. A deal that could turn our industry on its head. News was also beginning to trickle in about BIG-TIME losses by the big three flash memory manufacturers. The “good days”, it seemed, were going to come to an end. In a time where the economy is covered in gooey bandages and slimy with topical antibiotics, things were going to get that much harder.

By the end of June of this year, we were already seeing minute increases of about 3-5% on a bi-weekly basis. Although it is not a pleasant call to make, it is not hard to justify a $.20 per unit increase in a fluctuating, commodity-based market. So, we made do and things in the business were still looking bright. Then, the big hit.

In the first week of July, the news hit that Apple had made a substantial purchase of NAND Flash Memory for the new 16Gb I-phone they would be releasing. The numbers were staggering. A purchase of nearly $500,000,000.00 in flash memory hit the industry like a ton of bricks. Toshiba was the big winner here, but it did not take long for Samsung and Hynix to follow suit in what would be, literally, and overnight price increase of almost 30% for the promotional USB industry.

Now, try and call your customer on Monday morning to tell them that you can longer honor a price on the Purchase Order they had faxed over the weekend. Just tell them, sorry, but I have to charge you an extra $1.25 PER UNIT and there is nothing I can do about it. When we are talking about these kinds of significant numbers, people tend to get a little annoyed. Many sales were stalled or lost, and many customers left to run the risks of purchasing down-graded flash and refurbished garbage in order to stay within budget. And so we forged ahead and as the dust settled, we were able to stabilize, and angry customers slowly calmed into the realization that this was “just the way it is”. Things were good for about two weeks and then, as sure as a rain cloud brings thunder, the prices started to increase again.

By the beginning of August, the “5% creep” began again and we started seeing articles about how flash memory manufacturers were reporting tremendous losses for 2008. So, what do you do when you are a multi-billion dollar company providing much-needed technology to the masses and bleeding money like a stuck pig? You do what you should have done a year ago: Put a strangle-hold on a market that demands high quality products and can only get it from yourself and a select few others. You stop manufacturing flash memory chips that are in much lower demand than the 50,000,000 chips that Apple pre-paid for for their next record-setting year. Set the market at whatever price you want. Create an increasing demand by hoarding inventory and releasing much needed products on the market slowly. Scorn the very industry that created demand for flash memory before the advent of the i-phone and back when the i-pod was an unaffordable gadget.

Yes, people, I am bitter. The promotional USB industry has been pushed aside like a red-headed stepchild by the flash memory manufacturers. How easily large corporations forget the sectors that helped them through hard times. flash memory has many applications besides USB and SD cards. They are used in today’s most popular devices: MP3 players, I-pods, I-phones, Smart Phones, and the like. As these devices became more affordable to the general public, the demand for higher capacity flash memory grew. Suddenly, the promotional USB sector was not the big sell anymore. And so, as it goes, we have fallen to the wayside and are subject to the bullying of price gouging, or whatever you want to call it.

In conclusion, I guess my point is this: Price fluctuations in the custom/promotional USB industry is NOT a ploy to increase profits. At least, not by the manufacturers and resellers of USB products. Computer memory of any kind is most definitely a commodity and subject to all of the same rules of supply and demand that wheat, corn, and gold are. So, if you are in the bidding process with several companies and you receive a call saying: ” Bob, I sincerely apologize, but we can no longer honor last week’s quote”, do not be angry. Do not be alarmed. No one is trying to pull the wool over your eyes, or even worse (insert imaginative expletive here). This is just the way things are in our world and stability is a luxury we see very seldom. This article should in no way sway you in your decision to purchase USB as a promotional tool. No matter the price, customized USB drives’ value far outweighs that of any other medium. If you break it down over time, they are still the best value and most reliable form of branding around.

Until next time……as always, thanks for reading my rant.

1 Comment
  1. Custom USB Drive Printer permalink

    Good rant! You described the situation in the custom usb drive market precisely. We tell our customers right from the get go that the Nand chips are a commodity traded on an exchange like wheat, oil, or gold and that price volatility may cause a change in price. I also agree with your statement about custom usb drives being the best form of branding around. Customized USB drives have a very high perceived value and are extremely practical. Just about everyone uses them. Again nice blog! I wrote one myself on the same topic but did not explain it as eloquently as you did.

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