So what’s up with SanDisk and Tower Semiconductor? Between news, rumors and SEC filings its a pretty puzzle. From the outlines of what I can see, believe it’s all about controllers, and specialized controllers at that. Promising for both companies.
For all that’s written about NAND chips, remarkably little is devoted to the little engines that make them go. Every NAND flash memory-based device, whether memory card, USB drive or whatever needs added processing power which together with software creates a fully functional device.
Usually the most efficient and cost effective strategy is to use a dedicated external NAND controller.
The controller manages the interface to the host device and handles all the reads and writes for the NAND flash. The better the performance of the controller the better the performance of the NAND and the better the performance of the device.
Performance includes not only speed but also reliability. The controller and its software handle error correction, wear leveling, and other flash management tasks. The better the controller, the faster the flash device, the better it will perform, and the longer it will last.
Controllers are customized for the type of flash used and to some degree for the the interface required. This means (usually) different controllers for SLC and MLC and different controllers for the different NAND architectures whether produced by different NAND fabricators or new geometries from the same fab.
For example the new SanDisk 56 nm MLC chips, which have just begun shipping in volume, require new controllers.
It should be no surprise that SanDisk was the leading seller of NAND flash storage card controller chips in 2006 with an estimated equivalent of $84.3 million in revenue and a market share of 24 percent of the card controller market.
SanDisk of course does not sell individual controllers, but only sells complete solutions, fully functional products which include NAND, software and controllers. Since SanDisk sells gazillions memory cards, USB drives and so forth, it sells more controllers than anyone else.
Believe SanDisk’s controller expertise is generally under-appreciated. Since the performance of the flash memory in a device is dependent on the integration of the controller, software and NAND, the better the controller design, the better the performance of the whole system.
SanDisk designs its own controllers and this gives it an advantage over the competition, not only in performance, but also in time to market and IP. Since SanDisk designs its own NAND memory (along with partners), it is in a position to design its controllers in parallel. The competition typically buys its controllers from third party suppliers such as Silicon Motion, Skymedi, InComm or Phison.
Since SanDisk has been at this since 1988 and has been patenting its efforts along the way, it has built up enviable controller IP. SanDisk’s strategy of controller IP enforcement is not to go after the competing controller companies but rather the competing card etc companies. This is discussed at the end of the Q2 SNDK cc Q&A.
Although SanDisk designs its own controllers, it does not manufacture them. SanDisk purchases its controller wafers from Tower Semiconductor, United Microelectronics Corporation (UMC), Taiwan Semiconductor Manufacturing Company (TSMC), and Semiconductor Manufacturing International Corporation (SMIC).
TSMC and SMIC appear to be new suppliers. SEC filings reveal that in 2006 SanDisk only purchased controller wafers from Tower and UMC. My sense is that SanDisk’s demand for controllers is so great that Tower and UMC were not able to keep up. Never hurts to have multiple suppliers either.
SanDisk has done controller business with both Tower and UMC for years.
Tower Semiconductor is an independent specialty foundry located in Migdal Haemek, Israel. It was established in 1993 when it acquired National Semiconductor’s 150 mm wafer fab built in 1984. Today this fab, known as Fab 1, is still running strong with process technologies from 1.0 to 0.35 micron. Today Fab 1 produces up to 16,000 150mm wafers/month, primarily for CMOS image sensors, embedded flash and mixed-signal technologies.
In January of 2001, construction started on a new Fab 2, adjacent to Fab 1. By 2003, the infrastructure for Fab 2 was complete, limited equipment was moved in and initial wafer production began.
Fab 2 is designed to operate in geometries of 0.18 micron and below, using advanced materials and advanced CMOS technology. SanDisk’s interest is in Fab 2.
Fab 2 has been starved for capital from day 1. Basically it appears that Tower scraped together enough to get the building up, but only enough to equip half the fab.
As Dov Moran, current Tower chairman and ex-msystems CEO, puts it, “Tower Semiconductor is like a hotel in a great location, where they built six stories, a swimming pool, a spa and gardens, but then they ran out of money before buying beds.”
Dov was recruited at the personal urging of his friend Eli Harari.
Remarkably Tower survived the dark days of 2005. In 2005 Tower’s sales shrank 20% year over year to $102 million.
2006 was a much better year. Revenues hit $187.4 million. Significantly Tower recorded positive cash flow from operations in Q4 2006, for the first time since Fab 2 was established.
Much of the turn-around credit should probably be attributed to Russell Ellwanger, Tower’s new CEO, brought on board in Q2 2005 to save Tower from collapse. Curiously Ellwanger is an American and a Mormon. Ellwanger was recruited from Applied Materials by — Eli Harari.
So Tower’s Chairman and CEO were both hand-picked by Eli, who also sits on Tower’s board. So why does Eli take such a personal interest in Tower?
It probably has to do with controllers. Tower is really good at that game.
SanDisk + Tower
SanDisk is already a significant shareholder in Tower and the stakes may soon be raised.
Israeli press is reporting that SanDisk is interested in buying Israel Corp’s 11.5% stake in Tower, which would increase SanDisk’s stake to 24 percent.
By owning a bigger piece of Tower, SNDK would pull more weight in the boardroom. Not a bad thing since SNDK appears to be ready to lean into its production ramp with Tower. Also, suspect that SNDK and Israel Corp don’t see entirely eye-to-eye. If so, so much the better if Israel Corp were to disappear from Tower’s board room.
Press reports speculate that SanDisk’s offer for Israel Corp’s Tower shares is based on Tower valuation of $400M, which would mean $46M out of pocket for SanDisk. Looking at SanDisk’s controller wafer ramp at Tower, this would probably money well spent. Sandisk’s investment in Tower would be more in line with its Tower business.
According to SEC filings in Q1 2007, SanDisk purchased controller wafers and related non-recurring engineering of $16.0 million and $6.6 million. So SanDisk did a total of $22.6M worth of Q1 business with Tower. Tower total Q1 revenues were $55.6 million, so SanDisk alone accounted for 40% of Tower’s Q1 revenues.
SanDisk’s Q2 SEC filings show that Tower controller wafer purchases increased 40% QoQ from $16M to $22.5M. And it doesn’t look like it is going to stop there.
When Fab 2 is fully operational it will be able to produce something like 40,000 200 mm wafers per month, but there’s a long way between here and there. As of May 31, 2007 Fab 2 was only running at about 21,000 wafers per month, half capacity.
Tower has plans to ramp to 24,000 wafers and looks likely to get there soon thanks to a $9.8 million loan from SanDisk for equipment for 0.13 micron logic wafer capacity.
Beyond that, the limiting factor continues to be fab equipment. This stuff’s not cheap.
The next leg of the Fab 2 ramp is from 24,000 wafers/month to 36,000 wafers/month. This appears to be an $80M problem. If the equipment had to be new, the number would be much higher, but apparently used-equipment plan will do just fine, thank you.
As cutting edge fabs race to stay competitive, they are converting from 200 mm wafers to 300 mm wafers. What to do with the “old” 200 mm equipment? Sell at a steep discount to any takers.
Prime opportunity #1 for Tower appears to be AMD Dresden Fab 30 (renamed Fab 38). When asked recently about such rumors Tower CEO Russell Ellwanger would neither confirm or deny press reports. In other words, yes this is a hot one and it has the 90 nm equipment which I suspect Eli covets.
Tower looks close to raising the $80M needed for equipment. $40M was raised recently in long term bonds in the public market in Israel. Tower appears ready to complete the funding through a longer term debt vehicle.
Suspect it won’t be another $40M in one chunk, but a lessor amount supplemented by creative financing. In any case it appears Tower is going to get the funding and the used equipment whether from AMD or other sources.
If all goes according to plan, Tower will have the equipment installed in a year, Tower could turn profitable, and SanDisk will be on the receiving end of a whole lot more cutting edge controller wafers.
And what controller wafers are being schemed up? No doubt a range of controllers are currently being produced and will continue to be produced, but some are probably more equal than others. My guess is that specialty controllers are a high Tower priority.
Today Tower is the sole source for SanDisk’s secure controllers which has to mean TrustedFlash. Will post more about TrustedFlash later.
Would think Tower a natural supplier for other specialty controllers in the pipeline as well. Top of the list are probably SSD, x4 and Matrix 3D controllers.
A big advantage of using Tower as opposed to other fabs is IP security. Where IP is critical, Tower is the logical source. Far less likely for secrets to leak out in Israel, compared to the Far East. Tower has proven it can keep secrets.
To accompany this post, am going to post a transcript of Tower’s 07.10.2007 presentation at the C.E. Unterberg, Towbin’s Emerging Growth Conference. Lots of relevant Tower info in there for those so interested.
Tower releases its Q2 results this Wednesday. Suspect conference call comments and accompanying SEC filings will be quite interesting/revealing.
Forgot to mention that Tower might be bidding against the Ruskies for the AMD Dresden equipment. Interesting stuff/ small world.