Creative blames Apple for chip shortage

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Apple is forcing consolidation among MP3-player manufacturers and has created a major shortage of the flash memory chips they depend on as they approach their biggest season for sales, said the iPod maker’s biggest rival.

Creative Technology, based in Singapore, said on Wednesday that Apple had struck a special deal with Samsung, the biggest memory chip maker, which had created an industry-wide shortage of one-gigabyte flash memory chips such as those used in the iPod Nano.

“That will impact our one-gigabyte MP3 players in the holiday season because of the difficult and tight supply,” Craig McHugh, US president of Creative, told analysts on a conference call to discuss quarterly results.

“Apple is applying pressure on the whole industry,” said Sim Wong Hoo, Creative chief executive.

“The MP3 market is now consolidating: many Chinese manufacturers at the low end went out of business over the past six months and other Asian suppliers are getting out because it’s very hard to face this kind of pressure,” he said.

Japan’s Rio brand ceased production last month. Creative is the number-two portable music player maker behind Apple, which sold 6.5m iPods in its last quarter.

Apple chose flash memory for its iPod Nano music player, launched in September as a slimmer replacement for its iPod Mini, which had a small hard drive rather than flash chips.

According to iSuppli, the chip research firm, the 2Gb Nano has two separate 1Gb NAND flash parts sold together for about $54 by Samsung, representing a substantial discount.

“By switching from hard drives to flash memory for a key iPod model, Apple has radically altered the dynamics of both the memory market and the MP3 player market,” said Chris Crotty, iSuppli consumer electronics analyst.

Isuppli estimated Apple would buy as much as 40 per cent of Samsung’s output for the second half of this year, forcing its rivals to suffer price premiums due to competition for the remaining supplies that would squeeze their margins and average selling prices.

Creative’s chief executive said he thought Apple’s deal was “a one-off thing” and a “one-sided deal” that did not really benefit Samsung.

He also predicted that consumers’ fascination with the increasing slimness of Apple’s iPod would fade as they came to demand more features.

“The iPod now is probably too slim, there will be a market that wants to see more features and capacity and will not mind a product that is bigger, as long as it still fits inside a pocket and does not scratch,” said Mr Sim on Wednesday.

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