This week I was planning to write once again about the gPhone, but instead have decided to revisit the subject of MLC solid state drives (SSDs) and in particular MLC controllers for SSDs.
On 8 November, an interesting SanDisk controller patent application showed up and I decided to take the time to look at it more closely. In addition, a friend forwarded me a copy of a Bear Stearns’ flash report which contains some interesting MLC SSD comments from both SanDisk and Intel. Excerpts from this report can be found below after my ramblings.
The SSD market is a key strategic market for SanDisk. It is projected to grow nicely in 2008, accelerate in 2009, and by 2010 or 2011, Sandisk thinks it will become the second largest user of flash memory after mobile handsets.
SanDisk believes that its flash systems expertise, and in particular MLC implementations as well as its extensive system IP, will become important differentiators in this market as it unfolds over the coming years.
The MLC SSD will be a milestone for SanDisk, shaving something on the order of 40% off the cost of SSDs.
According to Bear Stearns, SanDisk recently stated that it would deliver MLC-based SSDs for notebooks in 1H08. Although I might be reading too much into the language, it seems like product rollout is creeping up. Not long ago it was sometime in 2008, then in the Q3 conference call it was midyear. Now it is sometime in 1H 2008.
Am now guessing we’ll get an announcement at least in February, around the time of the 2008 SanDisk analyst day. Personally believe that SanDisk has the goods on MLC SSDs. If so, the time to flaunt it would be on analyst day. Time will tell.
In any case, the SanDisk high-performance flash memory data transfer controller patent looks pretty sweet. Basically SanDisk appears to have figured out a way to achieve high performance data transfer together with low power consumption for flash memory including MLC, both 2 bit and 3 bit. Examples given show close to twice the data transfer speed of conventional controllers, using approximately one half the power. Reading between the lines, it appears that SanDisk has the means to cost-effectively approximate SLC performance with MLC.
Two applications where this controller would be particularly well suited are stated to be high performance digital still cameras and — SSDs.
Bear Stearns also reports that SanDisk’s system level patent IP litigation could result in agreements with significant IP revenue. Bear Stearns estimates that if all the players included in the suits were to obtain a license from SanDisk for all the products named in the lawsuits, SanDisk’s annual royalty revenues could increase approximately $60-$70M and this is before SSDs.
I suspect that one of the reasons behind SanDisk’s new push in system level licenses is to set the stage for SSDs where SanDisk system level IP could be critical regardless of another company’s controller strategy.
I’m inclined to think that SanDisk’s IP approach to SSDs will be two pronged. A general system level license for some and partnerships for a select few. Partners will pay more, but they will get the real deal for their dollars.
The select few in line for partnerships are likely those unnamed companies in the previously discussed Solid State Storage Solution LLC.
As noted, Intel would seem to be a candidate. Intel is a NAND producer targeting SSDs, and probably trustworthy as a potential partner in SanDisk’s eyes.
If Intel is in league with SanDisk for SSDs, suspect we should know before the middle of next year. Bear Stearns is reporting that Intel will be releasing its own MLC SSD around then. Maybe Intel has the MLC controller and system expertise in-house to pull such a product off on their own. On the other hand, maybe they have a friend in SanDisk.
Below is slide 24 “Flash Competitors & Alliances” from Eli’s 8 August presentation at the Flash Memory Summit. Note how the Intel bubble overlaps onto the Toshiba/ Sandisk bubble. No explanation was given in the presentation and no questions were asked. Curious though, isn’t it?
November 8, 2007
Key Takeaways From The Bear Stearns Flash Tour
SanDisk Corp $40.67 O
O=Outperform; P=Peer Perform; U=Underperform
Securities in this report priced as of:
November 07, 2007 16:00ET
• We hosted meetings with SPSN, MU, INTC, SNDK and SIMO, and a conference call with Samsung, as part of our annual flash bus tour.
• While several of the companies were cautious about near-term NAND supply-demand due to increased supply from process transitions across the industry, SanDisk reiterated its optimistic outlook for 2008 as a whole. We continue to believe overall 2008 industry dynamics will be better than 2007, and currently expect demand to exceed supply in 2008.
• SSDs as a new major demand driver were a common theme in the meetings. SanDisk and Intel expect to introduce MLC-based SSDs for notebooks in 1H08 and 2Q08/3Q08 respectively, which we believe should serve as a catalyst for increased adoption of SSDs in notebooks as we move through 2008 and into 2009. Intel is also seeing strong interest for SSDs from the enterprise market. In the nearer term, SSD demand could increase from applications such as UMPCs and CE devices.
• Continued demand growth from handsets was also highlighted by companies as a key driver for NAND demand in 2008. Not only are the number of handsets with slots increasing, card adoption rates have also been increasing rapidly, driven by increasing multimedia capabilities in phones.
• As highlighted yesterday, Samsung provided incremental color regarding their 2008 memory capex. While spending plans have not been finalized, the company currently expects to spend <W6.0T in 2008 on memory vs W6.2T in 2007 (excluding Austin). We expect capex for the Austin facility to also decline significantly. Samsung’s comments are positive for the memory industry as its spending plans demonstrate a balance between protecting market share and impacting industry dynamics.
Overall, our meetings do not make us change our view on SNDK, MU or Samsung. While we expect the NAND market to exhibit typical seasonality in early 2008, we maintain our view that the pricing environment for the year as a whole will be better than in 2007.
Key takeaways from company meetings
Samsung Electronics (005930.KS-KRW570,000, Outperfom)
• Samsung provided incremental color regarding their 2008 memory capex. While spending plans have not been finalized, the company currently expects to spend less than W6.0T in 2008 on memory (excluding Austin). This is less than their revised memory capex for 2007 of W6.2T (excluding the Austin facility which has cap-ex of W1.0T this year). We also expect spending in the Austin facility to decline significantly next year. We see this as a positive for the memory industry as Samsung’s spending plans demonstrate a balance between protecting market share and impacting industry dynamics. The company’s stance was clearly less aggressive compared to its last earnings call, where management emphasized strengthening their market position as an important factor for their spending plans.
• Looking ahead to 2008, Samsung believes NAND industry dynamics should be significantly better than 2007 driven by continued growth in NAND demand from handsets and demand from new PMP models and SSDs. The company does not expect a sharp oversupply in 1H08 as we saw in 1H07. Samsung reiterated their 2008 production bit growth guidance of 120% YoY, and their expectation for the industry to also grow around 120% YoY.
• On the DRAM side, as expected, Samsung’s tone was relatively more pessimistic, and their comments suggested that they do not expect a recovery in DRAM market conditions until 2H08. While Samsung expects their DRAM business to continue to be profitable in 4Q07 due to a higher mix of specialty DRAM, the company suggested that continued losses at its competitors should result in significant cutbacks in DRAM capex next year, which should help industry dynamics in 2H08.
Intel (INTC-$26.90, Outperform)
• Our meeting with Intel was focused on their NAND business. At a high level, Intel’s strategy in NAND is to deliver solutions for their computing platforms, specifically caching solutions and SSDs, by taking the flash components from the IMFT joint venture and adding to it its system expertise. The company also plans to waterfall its NAND solutions to the embedded storage market such as in CE devices.
• Intel (through the joint venture with Micron) has started the ramp of 50nm-based NAND flash, and plans to convert production from 72nm to 50nm process technology over the next few quarters.
• Intel plans to launch SSDs based on the SATA 3.0 Gb/s interface in 2008, for storage in notebooks and for the enterprise server/storage market. Intel currently offers SSDs but with a USB interface. In the notebook space, the company plans to launch MLC-based SSDs in 2Q08 or 3Q08. In the enterprise server/storage space, the company emphasized that despite the higher cost of SSDs versus HDDs, other components of the total cost of ownership are lower, as SSDs require less maintenance costs, and need less space and cooling, and noted that customers have been very keen to use SSDs in the enterprise server/storage space.
• Separately, Intel plans to launch small form factor SSDs with a PATA interface next year, targeted toward the UMPC/MID market This is a package-on-package solution that stacks NAND with the PATA controller to reduce space and weight. It will be included on the motherboard in their Menlow platform, which will use their Silverthorne microprocessor.
SanDisk (SNDK-$40.67, Outperform)
• SanDisk continues to expect favorable NAND supply-demand dynamics in 2008. The company still anticipates the need to increase non-captive production in 2008 to meet increased demand. Near-term demand also remains strong and management commented that they wished they currently had more product to sell. While we believe 2007 will be oversupplied, we think 2008 industry dynamics will be better than 2007, and currently estimate that demand will outstrip supply in 2008.
• The presentation largely focused on the mobile space as SanDisk expects mobile cards to be a key driver in 2008. Management estimates that about 400M phones will have card slots in 2008 and slot penetration will grow to ~900M in 2010. SanDisk is seeing a greater attach rate (cards to phones with card slots) in 2007, estimating that about 30% of phones with card slots have cards. The company highlighted the move to feature rich phones – like the Nokia N95 and Sony Ericsson K850 which both include 5 mega pixel cameras and DVD quality video – as drivers for greater card adoption.
• SanDisk also briefly commented on its license and royalty revenue stream, suggesting that its system level patent IP litigation could result in agreements that are not insignificant to revenue. While SanDisk did not provide any financial information regarding the suits, we estimate that if all the players included in the suits obtain a license from SanDisk for all the products named in the lawsuits, it could result in approximately $60-$70M in annual royalty revenue. As a point of reference, we currently estimate royalties of $532M in 2008 for SanDisk, which implies about $1.42 in EPS.
Aside from demand drivers like handsets, and SSDs the company also commented on the camera market, suggesting that there has been a recent resurgence in demand for high-end DSLR cameras.