Prices of flash memory chips have plunged to a critical “tipping-point” that could see them replacing hard discs as the storage technology of choice on laptop computers within two years.

Flash memory has the advantage of being rewritable and requiring no power to retain information, making it ideal for saving data in portable devices such as digital cameras. The impending “major shift” in demand for flash memory – predicted by several leading electronics analysts – will see it replace more traditional storage devices in computers.

This trend is believed to be behind a trillion yen capital spending bet by Toshiba on flash and other semiconductor technology.

The company plans a massive expansion of Nand flash chips manufacturing over the next three years, despite the 70 per cent collapse in prices over the course of 2006. Toshiba itself is forecasting a further 60 per cent slide in flash memory prices in the current calendar year.

While it is highly damaging to short-term margins, the collapse in prices may bring forward to this March a critical pricing point where the per-gigabyte cost of flash memory is only twice that of 1.8-inch laptop-sized hard-disc drive memory.

Yoshiharu Izumi, senior electronics analyst at JPMorgan who expects flash usage to expand rapidly in a wide range of consumer electronics devices, said: “Falling prices of Nand flash memory will transform the laptop PC market, with flash memory increasingly replacing hard-disc memory.”

However, flash memory is not expected to replace hard-disc drives in desktop computers. Growing consumer use of multimedia applications is creating storage needs that only large-capacity hard drives can satisfy.

“As more and more media-rich applications come into consumers’ hands, the capacity needed far surpasses what flash can do,” said Bill Watkins, chief executive of Seagate, the largest hard-drive maker.

However, Analysts at Deutsche Bank believe a transformation in the market has already begun and that by 2008, at least 15 per cent of global flash memory demand will come from the personal computer market. Demand is expected to rise rapidly as consumers choose to pay more for flash-only laptops because of their smaller size, quicker processing speed, greater robustness and longer battery life.

Fujitsu and Samsung have already released flash-only laptops, and Sony plans to release a hard-disc-free PC in the US next week. Intel is also introducing flash into laptops.

Deutsche analyst Fumiaki Sato believes that, by 2009, the price of 64 gigabytes of flash memory will fall below $120 – a point where the technology could take “meaningful share away from HDDs in portable PCs”.

Additional contributions by Anna Fifield in Seoul