Source: iSuppli Corp.

Thanks in large part to Apple's (AAPL) iPhone and the growing ranks of iPhone imitators, worldwide sales of NAND-type flash memory are expected to rise nearly six-fold from 2008 to 2013, according to a report by iSuppli Corp. issued Wednesday.

Global revenue from sales of NAND flash for mobile phones could hit $932.5 million in 2013, according to iSuppli, up from $166.5 million in 2008 — a compound annual growth rate of 41.1%.

“NAND flash makers can thank Apple Inc. for starting this trend, with its iPhone models injecting new life into the memory market," writes Michael Yang, senior analyst for mobile and emerging memories at iSuppli. "However, with the introduction of the a new generation of ‘iPhone killers,’ multiple smartphone makers now are helping to drive NAND demand.”

Apple sold 5.2 million iPhones in its last fiscal quarter and is planning to introduce a version the phone in China. "This," says Yang, "will open up the market for the iPhone to a new potential audience of 1.3 billion people.”

Yang also credits Apple with raising the bar for how much memory manufacturers are expected to pack into their smartphones.

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There's good and slightly less good news for Apple (AAPL) in a report issued by iSuppli on Wednesday.

Against a backdrop of slowing sales growth in the overall mobile handset market, the El Segundo, Calif.-based research firm sees a bright spot in smartphones.

The report offers two scenarios for 2009 and beyond. Its best-case forecast calls for global smartphone unit shipments of 192.3 million units in 2009, up 11.1% from 173.6 million in 2008.

Its more pessimistic outlook calls for growth of only 6% this year, or 183.9 million units.

“For  the optimistic scenario to come to fruition, wireless network operators must cut fees for data services and offer aggressive subsidies to reduce consumer smart phone prices,” said Tina Teng, an iSuppli senior analyst. “Furthermore, wireless operators and handset brands have to sell consumers on the value of smart phones to encourage customers to upgrade."

For the pessimistic scenario to prevail, consumer confidence — and spending — just has to keep going the way it's headed.

iSuppli defines a smartphone by its high-level operating system, and includes phones that run Apple's iPhone OS, Microsoft's (MSFT) Windows Mobile, Nokia's (NOK) Symbian, Research in Motion's (RIMM) BlackBerry OS, Google's (GOOG) Android, Palm (PALM) OS and other Linux-based systems.

By this definition, iSuppli estimates that smartphone sales in 2009 will account for somewhere between 17.4% (optimistic scenario) and 16.6% (pessimistic) of the total handset market.

And what determines which brands do best?

"Applications are everything," according to iSuppli. “Beyond the friendliness of user interfaces, the availability of a variety of applications is the key factor attracting consumer interest to smart phone products,” writes Teng. “Thus, different players at various segments of the supply-chain are starting to build mini-ecosystems—including applications—in order to attract consumers and gain their loyalty."

Teng notes that Microsoft’s launch of MyPhone, Nokia’s Ovi and the Android Marketplace each represents a different approach to building these ecosystems.

What she doesn't mention is that Apple, with more than 20,000 apps and an installed base of better than 17 million iPhones, has a big head start.

See also:

• Now everybody has an App Store
• A taxonomy of iPhone competitors

That first weekend of iPhone 3G sales was a very profitable one for Apple (AAPL), based on some quick back-of-the envelope analysis.

We know from Apple that the company sold at least 1 million iPhones in those first three days. We know from a teardown published by iSuppli Monday roughly how much the phones cost to build. We know their retail price and have some pretty good estimates of how much that retail price was subsidized by AT&T (T) and the other carriers. Finally, we have a Piper Jaffray survey that suggests how many customers chose the more expensive 16 GB model over the entry level 8GB.

Here are the numbers:

• At least 1 million iPhones sold over the first weekend (Apple)
• Cost to Apple: $174.33 parts plus $50 royalties for 8GB model; $16 more for 16GB model (iSuppli)
• Cost to consumers: $199 (8GB), $299 (16GB) (Apple)
• Cost to carriers: conservatively, $499 (8GB), $599 (16GB) (iSuppli)
• Profit per phone: $274.67 (8GB) and $358.67 (16GB)
• Models sold: 33% (8GB), 66% (16GB) (Piper Jaffray survey)

Bottom line:

• 333,333 8GB iPhones @ $274.67 profit each = $91,556,000
• 666,666 16GB iPhones @ $358.67 each = $239,113,000
• Total profit to Apple: $330,669,000.

There are other costs Apple incurred that aren't accounted for here: software development, shipping and distribution, packaging and miscellaneous accessories included with each phone — the little black cloth for cleaning the screen, for example.

Still, it's probably a conservative number because it's based on iSuppli's estimated subsidy of $300 per phone. Other analysts put that figure at $350 (see, for example, here). That would add $50 million to Apple's bottom line.

Even though none of the teardown shops has yet to get its hands on one of the new iPhones, we now have two estimates of how much the 8GB model costs Apple to build.

The first, from Austin-based Portelligent, put the Bill of Materials alone at $100. (see here)

The second, issued Tuesday by iSuppli in El Segundo, CA, is more detailed and probably more accurate. As shown in the chart below, iSuppli came up with a BOM of $126.84 before $9 in manufacturing costs and $37.16 in unspecified "other costs" brought the total to $173. (link)

[E-mail subscribers click here to see the chart.]

Also not included in iSuppli's $173 total are an estimated $45 in royalties that Apple must pay to Qualcomm (QCOM) and others (see here) and fees due Hon Hai (Foxconn), Apple's Taiwanese manufacturing partner.

Still, Apple has managed to build the second-generation iPhone for 23% less than the first one, by iSuppli's calculation, while selling it to the carriers for roughly the same price.

iSuppli estimates that Apple (AAPL) is collecting $499 per phone from the carriers ($199 sale price plus a $300 subsidy), for an effective margin of 56%. Other estimates put the subsidy in the $325 to $350 range, which would push the markup even higher.

Below the fold: Commercial Times' best guess of who is supplying the parts listed above, as translated by DigiTimes.

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News out of overseas chip factories this week cuts both ways for Apple (AAPL), the world's No. 3 buyer of NAND flash memory.

The report getting the most attention — and stirring the most controversy — is the one published Wednesday by iSuppli Corp. Based on what chip makers are telling it, iSuppli is cutting its outlook for revenue growth in NAND flash memory (the chips used in MP3 players and USB drives) from the 27% it had expected for 2008 to "single digits."

"NAND suppliers are likely to go into the red in the first quarter," warns Nam Hyung Kim, iSuppli's chief memory analyst, "and are not likely to recover in the second.”

Grim tidings for the chip makers, no doubt.

The controversy comes from what the iSuppli report had to say about Apple's role in the shortfall:

In an early warning sign of consumer weakness, Apple Inc. has slashed its 2008 NAND order forecast significantly and has informed suppliers that its demand growth will slow in 2008 compared to 2007, according to iSuppli sources. … Before word of Apple's warning, iSuppli had predicted the company's NAND flash purchases would rise by 32.2 percent this year, helping drive significant market growth. (link)

Sounds pretty ominous, and the paragraph may have played a role in shaving a couple points off Apple's share price on Thursday.

But several commentators have taken issue with the use of the word "slash" to describe Apple's order forecast. As Tom Krazit at CNET points out, Apple's demand for flash is still growing rapidly, despite the broader slowdown in consumer spending. In fact, by his calculation, Apple is still planning to purchase 27 percent more flash memory this year than last year — just not the 32 percent iSuppli had expected.(link)

[UPDATE: Krazit now says that his calculations were wrong. "This was an error on my part," he writes in a corrected blog. "The 27 percent increase in flash memory spending in 2008 was iSuppli's previous expectation for the global market, not the revised expectation for Apple's spending. Right now, iSuppli doesn't have an estimate of how much Apple plans to spend on flash memory this year, and won't until more data becomes available."]

Moreover, what's bad for memory makers may actually be good for Apple. Chip prices were already plummeting (4GB flash memory fell more than 73 percent since last August, according to IDG), and a memory glut could drive them even lower. As Richard Hyde writes in Seeking Alpha:

Here is where the story gets interesting for Apple. Not only do they reap the benefit of huge decreased pricing, the difference between the 8GB and 16GB modules is only $11, even though the iPhone models differ by $100. Similar savings are seen in the 16GB and 32GB iPod touch. (link)

No wonder Apple can afford to cut the price of the iPod shuffle from $79 to $49. If it wanted to drive up demand, it could probably afford to cut prices all across the iPod and iPhone product lines.

Below the fold, iSuppli's breakdown of the chip makers' NAND revenue market shares for 2007.

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