On August 12, 2009, Eli delivered a keynote address at the Flash Memory Summit in Santa Clara, California.
I wasn’t at Eli’s presentation, but SanDisk has posted the slides. Many are the same as those that Eli used the day before at his Oppenheimer Conference Presentation (OPCO).
Much of the same material appears to have been covered.
One of Eli’s main points at the Flash Memory Summit was that over the next three years, the NAND business is not going to play out along the lines currently modeled by analysts.
There is a disconnect.
Analysts project huge growth in NAND demand in 2010-2013. To keep up with this demand will take incremental Capex of about $25B to 30B in new NAND capacity. Analysts project cumulative incremental NAND revenues of only about $20B in 2010-2013.
Analysts project NAND price reductions that are not consistent with slower cost reductions due to slowing NAND technology transitions beyond 2010.
EE Times picked up the story with:
“The NAND industry is at the ”crossroads,” as there is a ”disconnect” between future capacity requirements and demand, warned the top executive at SanDisk Corp.”
Here is a link to the full article.
Here we are two months later and there does seem to be a disconnect. More demand than supply. Not enough capacity. Predictably NAND prices continue to be strong.
Here is a slide from Sanjay’s Deutsche Bank (DB) presentation. Eli used an older version of the same slide at the Flash Memory Summit. Currently prices are up from this slide. 8 October DRAM eXchange 16 Gb average contract price= $4.98.
Such NAND pricing strength is unprecedented.
Eli’s OPCO comments on this same slide:
“You can see the positive impact for us of pricing rising. What I’m showing you here is every quarter for the last five years, 4 1/2 years. The ASP declines that SanDisk experienced on a quarterly basis and the red line is on an annual basis.
And you can see, its always negative, every quarter price reductions coming in, supported to a large extent by cost reductions, but not completely.
In 2008 you can see that price reductions are really cumulatively adding up to 62%. Deprived us of all profitability. Things started improving, though it is difficult to see here in the first quarter of 2009 and definitely on the upswing in Q2 of 2009.
So the trend is definitely moving in the right direction.
Of course the flip side of higher prices is that demand in terms of MBs/unit and even the number of units slows down. We know that elasticity works both ways. But we are very focused on profitability. This is our #1 concern right now.”
When SanDisk reports Q3 earnings on October 20, we’ll find out whether higher NAND prices have dampened demand. I doubt it, given that Sanjay noted at DB that bit demand growth would be upwards of 100% for 2009. Basically this means that SanDisk is selling all their NAND production and burning through inventory.
The slide below was used at both the Flash Summit and OPCO. SanDisk left off 2010e. Nonetheless, from his comments, Eli appears to think 2010 will look like 2009, with supply bit growth of 50%±.
Eli’s commentary at OPCO:
“One of the most important developments that the industry has gone through in the last 6 months is a significant deceleration in supply and that has occurred really in the first and second quarters through production cutbacks. Which heretofore, have been unheard of.
As well as delay or defer, basically nobody is talking about new wafer fabs for NAND. So I think things, have in Q4 of last year, have become very very difficult in the industry, and there was really no other direction to go, but to cutback.”
In OPCO Q&A Eli elaborated, pointing out that without adding new wafer capacity, bit growth won’t go above 50% for any NAND supplier:
“ We have said that for this year we expect our total bit growth, 2009, to be under 50%. And that is through technology transitions. 43nm and going to three bits per cell. The next technology transition will be 32nm both two and three bits per cell.
Typically in a technology transition like that you can expect between 30 and 50% more bits. You cannot expect 100%. You have to put in place new capacity for new wafers if you want to go above 50%. That’s true not just for SanDisk, its true for any other supplier.”
This last week the DRAM eXchange released their estimates for NAND demand and supply for 2010. For Q1 and Q2 2010 supply is expected to slightly exceed demand, then in Q3 and Q4 demand is forecast to exceed supply. Bottom line- Shortage in 2010.
See chart below.
I kept looking at the chart and something seemed wrong. Finally it dawned on me. Estimated supply growth looked remarkably strong. Given Eli’s comments I was expecting 50%± since industry wafer adds are expected to be minimal at best.
I went back to the commentary and sure enough the DRAM eXchange is expecting NAND supply bit growth of 79%.
Sure seems like a disconnect somewhere.
NAND supply could get really tight next year. No wonder Apple is locking in all they can.