The rising cost of building state-of-the-art memory chip factories is making manufacturers think twice about adding new capacity, increasing the likelihood of strong prices, the chief executive of SanDisk said.
Sanjay Mehrotra told analysts at a conference on Wednesday that even as demand grows for flash memory, used in smartphones, tablets and solid-state drives, chipmakers are adding little new capacity.
Following an industry slump in memory chip prices last year that hurt manufacturers, prices for memory chips have been strengthening in 2013.7
"We are in for an extended period of stability with respect to flash fundamentals. This will then have an impact in terms of providing a favorable pricing environment for the flash industry," Mehrotra said.
Mehrotra said memory chipmakers, which include Samsung Electronics and Micron Technology Inc, will likely increase total NAND flash manufacturing capacity by around 7 percent this year. He said additions next year will remain moderate, partly because building cutting-edge production lines is becoming more expensive.
"The factors influencing the capacity additions certainly include considerations of greater capex required as well as concerns around ROI," he said.
SanDisk makes NAND chips through a joint venture with Japan's Toshiba, which on Wednesday forecast a 34 percent increase in operating profit for this year, boosted by strong sales of flash memory chips.
Mehrotra repeated previous comments that SanDisk will add less new supply than average across the industry. Last month, SanDisk raised its forecast for revenue this year.
Shares of SanDisk were down 0.5 percent at $55.15 on Wednesday.
(Reporting by Noel Randewich; Editing by Steve Orlofsky)