Mother of All Markets

If there is one reason for owning SanDisk, it is exposure to the mobile market. When Eli Harari, SanDisk’s CEO, recently referred to this market as the “Mother of All Markets,” I just figured he was coining a memorable phrase. It turns out, he was making an astute historical reference.

The phrase, in context, is John Sculley’s, a post/pre Apple-Jobs CEO, and goes back to 1992. Check out this 1992 NY Times article. Good stuff. Love the Andy Grove counterpoint, a “Pipe Dream Driven by Greed.” Just goes to show how very, very wrong, very smart and talented folks can sometimes be:

“We are writing Chapter 2 of the history of personal computers,” said Nobuo Mii, vice president and general manager of the International Business Machines Corporation’s entry systems division.

How rich is this lode? At one end of the spectrum is John Sculley, the chief executive of Apple Computer Inc., who says these personal communicators could be “the mother of all markets.”

At the other end is Andrew Grove, the chairman of the Intel Corporation, the huge chip maker based in Santa Clara, Calif. He says the idea of a wireless personal communicator in every pocket is “a pipe dream driven by greed.”

These devices are expected to combine the best features of personal computers, facsimile machines, computer networks, pagers, personal secretaries, appointment books, address books and even paperback books and pocket CD players — all in a hand-held box operated by pen, or even voice commands.

History and current events have made Mr. Sculley’s case, though his timing was a decade off. 2007, not 1997, will be remembered as the year of the converged device.

“Chapter 2 of the history of personal computers” today is usually referred to as the “Post PC” era. The cell phone enabled convergent device looks poised to become the personalized computing device of choice. Exhibit #1 is the iPhone.

In the PC era, mass storage has been provided by hard disks. In the upcoming Post-PC era, solid state storage is going to reign supreme. The number one company today providing the full range of solid state NAND storage solutions to the mobile market — SanDisk.

Although NAND memory demand driven by the mobile market looks big today, these are just the early, early days. As mobile handsets morph into entertainment devices and handheld computers, content requirements and related memory requirements just go up and up.

Between now and 2011, NAND memory demand driven by the mobile market is going to experience explosive growth. How big will this growth be? Its going to be measured in 10’s of thousands of Petabytes.

Tens of Thousands of Petabytes

nand-flash-crop.jpg

SanDisk CFO Judy Bruner, included the above slide [cropped here for legibility] in her recent Citi presentation. This May 2007 graphic from Gartner illustrates NAND Flash Demand Drivers by market segment from 2005 to 2011.

Including all market segments, 737 Petabytes of NAND were shipped in total in 2006. Gartner predicts that by 2011, 33,500 Petabytes will be needed. This will take a remarkable 5 year CAGR growth rate of 114%.

The largest segment in 2011 is expected to be mobile, alone consuming about 10,000 Petabytes. Putting it another way, in 4 years the mobile market segment alone is expected to consume between 13 and 14 times the total NAND capacity of all of today’s NAND market segments combined.

All this NAND will be used three ways in mobile devices: in removable memory cards, in non-removable embedded storage solutions and in semi-removable high capacity SIM cards. Today SanDisk is the market leader in each of these segments.

Memory Cards for Mobile

Demand for removable memory cards for mobile devices is being driven by the sheer increase in numbers of handsets being shipped worldwide. From 2005 to 2010 handset growth is expected to be on the order of 400 to 500 million units shipped.

While these numbers are staggering, the growth in percentage of handsets with slots for removable cards is even more impressive. In 2005, about 100 million phones had card slots. By 2010, 800 million are expected to have slots (Strategy Analytics, December 2006.)

Not only is the demand for memory cards exploding, but the average capacity is increasing as well. From Q1’05 to Q4’06 the average capacity of cards sold by SanDisk in the mobile retail channel has increased 420%. In Q2 2007, the average capacity exceeded 1 GB.

SanDisk sells the full range of memory cards, but one type of card in particular looks to be the hands down winner in mobile, and its a SanDisk baby at that. MicroSD, shown by the red line in the graphic below has become the defacto standard in the mobile industry. It is the dominant solution and is driving SanDisk’s retail sales in the mobile channel.

mobile-slots-by-card.jpg

SanDisk’s mobile storefronts increased by 37,000 from 2005 to 2006, going from 29,000 storefronts to 56,000 storefronts. In 2006, this has helped SanDisk secure #1 market share for mobile retail cards in the USA (80 to 90%), Europe (40 to 50%) and Asia (40 to 50%.)

Beyond Mobile Cards

The two other storage segments in mobile are embedded and high capacity SIMs. In acquiring msystems, SanDisk got a huge boost for both. msystems was particularly focussed on embedded and the semi-removable side/ MegaSIM. Thanks to msystems, SanDisk can now support the whole mobile ecosystem.

On SanDisk’s analyst day in February, Yoram Cedar, SanDisk’s VP of Mobile Business, noted that he had more people working under him from msystems than from legacy SanDisk. Good news to me.

My plan is to devote whole posts to both embedded and MegaSIM, so am going to keep it short here. MegaSIM should be up next week.

Embedded is doing rather well. Even with the explosive growth of removable cards, SanDisk has said that from now to the end of 2008, embedded will be growing as a percentage of SanDisk’s product mix.

SanDisk apparently has a number of design wins with iNAND in particular. Multichip packages with DRAM from Qimonda also look promising.

This year MegaSIM is not going to be a significant portion of SanDisk’s revenue. 2007 is a design-in period. But in 2008, MegaSIM is poised to emerge as a major revenue contributor for SanDisk.

To SanDisk’s credit it has managed/acquired its way to the inside track as the one-stop-shop for mass storage in a monster market: mobile devices. The next 4 years should be interesting to watch. Stakes are about as high as they get in these gorilla games. Mobile looks like the epitome, or mother, of hypergrowth high-tech markets.

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8 Responses to Mother of All Markets

  1. sambatyon says:

    Terrific:
    This gets 5 stars

  2. Mrs. Cencomco says:

    Savo,
    I thoroughly enjoy and appreciate your posts and look forward to them each week. The format is great and very informative.
    Thanks ever so much.

    On a personal note, my family is fine. We were all hit rather hard from Katrina (New Orleans, if you remember), but we are all back now and moving on. Thanks for your concern.

    Mrs. Cencomco

  3. flashwave2000 says:

    Savo,
    Again my thanks for your tremendous work and insight….i look forward to your posts very much as well.
    Do you have any comment on the investigation?
    thanks,
    gal2k

  4. flashwave2000 says:

    Savo,
    one other thing….i wasn’t going to mention it but i’ve been noticing the collage of pictures at the top of your blog. i know its, Eli, Dov, and Shlomi….but who is the guy in the upper right peeking over eli’s head? also i see that you added Tower this week to the Sandisk, M Systems team. Just want to let you know someone is noticing your artwork!
    gal2k

  5. Poofypuppy says:

    Hi Savo,

    Thanks as always, I check this site frequently on Sundays, eagerly awaiting your next weekly post.

    In the latest Street.com article on SanDisk (http://www.thestreet.com/pf/newsanalysis/techhardware/10379881.html), I noticed with some dismay that Samsung will be supplying 64GB NAND flash drives for Dell Latitude notebooks, whereas SanDisk had been selected to provide 32GB SSDs for Latitudes previously. I’m wondering if this was because Samsung’s product offered better performance. better pricing, or whether it was due to Samsung’s recently opened NAND fab in Austin, Texas (a few miles from Dell’s Round Rock, TX headquarters). If SanDisk can bring its X3, X4, and/or 3D technologies to market in the near future, the impact of this Dell SSD move should be minimal. But I confess that I hate seeing SanDisk get muscled out of what should be its own territory.

    Regards,
    poofypuppy

  6. savolainen says:

    Hi Mrs. Cencomco,

    Nice to hear that you and yours are well.

    Also glad to hear you think the format is working, It has taken a little while to get the hang of WordPress,com’s options, but am comfortable now.

    I like graphics, and thought this week’s graphics read pretty well. The alternative to fixed graphics are thumbnails. With thumbnails I can ultimately get a larger image, but somehow thumbnails don’t feel as integrated.

    With WordPress.com, I am not able to scale graphics within a post and legibility can be a challenge. Graphics need to be sized before uploading. Not a big deal, I just needed to sort out the details.

    Best,
    Savo

  7. savolainen says:

    Hi gal2k,

    The US Department of Justice antitrust probe seems rather misguided. Including SNDK even more so. After all since SanDisk doesn’t even sell individual NAND chips, how is SNDK going to scheme to fix the market price? Also from what I gather Winbond and some others are included that don’t even make NAND.

    Feels like a bunch of young aggressive government lawyers trying to make names for themselves. Not like such hasn’t happened before.

    The collage has kind of taken on a life of its own. Have no idea what folks make of it. I find it entertaining though. Am impressed you recognized Shlomi.

    Its Al Shugart (now deceased), ex-Seagate CEO, over Eli’s shoulder. Discussed Al briefly in one of the Tower posts in the “Al and the Snakes” section. He struck me as an interesting character. My guess is that he an Eli got along well. I seriously considered doing that whole post on Seagate’s missed opportunity, but decided to try to stay a little more on topic for SanDisk. At some point I might come back to that story though, as no one else seems to have picked it up. Maybe I’ll call it “Just Desserts”. Lots of irony. Seagate had it all and chucked it for the quick buck.

    The golden chip behind the FLSH building (this week) is an x4 controller (I think.) If it is not the controller, it’s likely an x4 chip. SanDisk (and FLSH before them) seems to use this image to illustrate x4.

    The swirly graphic next to Dov is from his new start-up Infone-tech.

    Best
    Savo

  8. savolainen says:

    Hi Poofy,

    FWIW, the Samsung SSDs in the two Dell Latitude notebooks seems like business as usual. Would not read too much into this. Dell is going to want at least two SSD suppliers. SNDK and Samsung are the obvious choices.

    Such competition is probably a good thing and a way to increase the SSD market. SanDisk is not going to win them all. 30 to 40% would be nice though (joke).

    SSD adoption in general is going to take a while. 2009 looks to be shaping up as the first really big year. Prices/costs need to come down. With 40-50% /year reduction in cost for NAND and MLC adoption on top of that, two years seems about right.

    The MLC controller for laptop SSDs is due 1:H 2008 according to Judy Bruner’s CITI’s comments. This will be a really important milestone.

    I heard that SanDisk moved the FLSH SSD team from Israel to the USA. It would be interesting to know SNDK’s reasons. Proximity to customers is probably one. Am still thinking that SNDK is thinking about pushing SSD evolution towards a removable consumer device/card. If true, then the USA makes sense as I believe SNDK’s consumer electronics is headquartered here.

    Best,
    Savo

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