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Toshiba, the world's second-largest NAND chip maker after Samsung, is eyeing an expected a surge in demand propelled by Apple's music-playing iPhone, according to analysts.

The iPhone - which will come with four or eight gigabytes of NAND - has fuelled hope among flash memory makers, weary of price falls eating away at profit margins, said Mizuho Investors Securities analyst Yuichi Ishida.

'The iPhone is testament

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that price falls are giving birth to new applications and new NAND demand,' Ishida said.

Toshiba, which aims to take a combined 40 per cent market share with partner SanDisk by 2008, will begin by shipping samples of its 2GB chips in March, using 56-nanometre process technology, and plans monthly shipments of 300,000 chips from April.

Cutting edge 50- and 56-nanometre microchips have smaller gaps between transistors than 60- or 70-nanometre ones, meaning more power can be packed into less space for lower per chip costs.

Toshiba also expects to begin mass production of 1GB NAND chips using 70-nanometre processes by the end of January.

Memory makers have been boosting plant spending in quest of ever smaller circuitry, despite price falls of some 70 percent in 2006.

'Whether NAND is going to be profitable or not in the short term is not the question,' said Ishida. 'Despite price falls, neither Toshiba or Samsung means to stop capital spending for fear of losing market share.'