X4, ITC, 2nd Thoughts and Clarifications

Once again I seem to be running behind. There isn’t time to both properly answer/address recent comments and put together a new post- So I’m going to address a couple of questions/comments here, throw in some odds and ends and call it a week.

X4

Hi Savo.

No words about X4?

http://finance.yahoo.com/news/SanDisk-Ships-Worlds-First-bw-2615839431.html?x=0&.v=1

Isn’t it SNDK’s Holy Grail?

Regards,

Beamer

****

Hey Beamer,

Although I haven’t posted recently on X4, that doesn’t mean I haven’t been watching.

I didn’t think the recent X4 pr such a big deal as its been expected for some time- though, it is nice to see SanDisk finally shipping X4 commercial product.

I found it interesting that the X4 connection to Ramot and Tel Aviv University was finally spelled out publicly. Whether there is more to follow remains to be seen, but should there be more, the context has now been spelled out.

Eli and Sanjay have consistently talked down X4. I’ve never been able to figure out why. Maybe there is nothing more to the technology than enabling a variety of econo-NAND.

Dov clearly had higher hopes. It would be interesting to get his thoughts on the potential of today’s X4.

In the SNDK Q3 conference call, Kevin Cassidy of Thomas Weisel Partners pushed Sanjay on whether the current X4 on 43 nanometer would be migrating to 32nm along with X2 and X3. His answer wasn’t encouraging, at least for 2010:

“ Kevin Cassidy, Thomas Weisel Partners: Congratulations on a great quarter. I just want to understand a little more on the four bit per cell. That’s on 43 nanometer process now?

Sanjay Mehrotra: Yes, that’s correct.

Kevin Cassidy, Thomas Weisel Partners: And will you be transferring that to 32 nanometer or is that going to only be three bit per cell?

Sanjay Mehrotra: So next year, some of our production will ship in 43 nanometer four bit per cell and as we ramp 32 nanometer next year, our focus will be on two bit and three bit cell technology.

Kevin Cassidy, Thomas Weisel Partners: Okay, and are there any limits to the applications that four bit can ship into?

Sanjay Mehrotra: Yes, as we have said before, the four bit per cell, it gives the benefit of lower cost but in terms of its applicability to various product platforms, it’s limited. That’s why we have introduced this on our standard SD high capacity cards as well as the memory stick pro dual cards.

The three bit per cell technology of course applies across all of our product platforms, and we expect, we plan to continue to drive that as the workhorse technology next year.”

Still, I suspect that there is more lurking with regards to X4 than SanDisk is letting on.

It’s clear that the technology is not limited to 4 bits per cell NAND, but can also be used on X3 and X2. Neither Eli nor Sanjay has ever mentioned this publicly to my knowledge.

Last year, there was talk that SanDisk was working on a technology to enable X3 for SSDs. My guess is that this technology is related to X4, but it could certainly be something else.

As to the importance of X4, I’ll defer to Samsung. From last year’s SanDisk’s arbitration win over Samsung:

“According to the testimony at the hearings, an early termination of the license caused by a termination of the Strategic Agreement will have serious financial consequences. This is due to M-Systems announcement in the second quarter of 2006 of a technological breakthrough called x4 technology, which enables, for the first time, the use of 4 bits per cell NAND. This effectively doubles the capacity of the 2 bits per cell NAND technology now utilized in flash memory products. According to the testimony, this new technology has significant implications for personal computers and all entertainment devices. The timing of M-Systems Notice of Termination did not escape Samsung who argues strenuously that, without the license granted under the Strategic Agreement, it will only be able to acquire the rights to the new x4 technology through a renewal or extension of its existing technology cross-license with SanDisk. According to Samsung, SanDisk will use the leverage gained from a victory in this arbitration to force additional royalties that could potentially cost Samsung billions of dollars.”

Samsung could certainly have had another agenda for talking up X4.

In any case, I’ve always suspected that they were overly-dependent on FLSH IP.

ITC

Hi Savo,

Do you have any thoughts regarding the impact of the U.S. International Trade Commission’s finding of “no violation” of SanDisk’s patents?

http://www.bloomberg.com/apps/news?pid=20601103&sid=aQRT.D2BCEJs

Thanks,
Poofypuppy

****

Hi Poofypuppy,

I was disappointed in the ITC ruling, but it wasn’t entirely unexpected. After all SanDisk lost the first time around.

This case was really all about controllers. If SanDisk had prevailed, there would have been the potential for another IP revenue stream from controllers as we know them today.

I suspect this would have been a particularly nice win to have. More $$ is always nice and beyond that there might have been another piece in place for SSD IP. Although the SSD story has been pushed out, it still looks like its going to be huge.

As far as the recent ITC case goes, curiously the ITC reversed itself on review, and then still ruled for no infringement. They upheld the the validity of SanDisk’s ‘424 patent, but determined that there was no infringement. Go figure.

Since SanDisk didn’t prevail, SanDisk is left with the status quo, which really is pretty good.

At last week’s 5 November Lazard Capital Markets Best Ideas Investor Day, Dan Amir tried to get Sanjay to talk. No luck, but interesting nonetheless:

“Lazard: I have one additional question. IP has always been a strong part of the SanDisk story. You renegotiated successfully the Samsung agreement. But also you have had some recent set backs at the ITC a couple of weeks ago. Where does SanDisk stand on this topic- on IP and what should we be looking at going forward in strengthening that part of your business?

Sanjay: Daniel, I am not going to comment on the details of our IP strategy here.  But in context of your question I would definitely like to point out that recently the patent board, recently in the last couple of weeks, the patent board evaluated SanDisk to be having the second strongest patent portfolio in the global semiconductor industry.

So the strength of our patent portfolio was #2 right behind Intel and we actually moved up from the #4 position in the past, to the number 2 position.

So I think that really speaks a lot about the strength of SanDisk’s patent portfolio, not only at the memory level, but at the system level as well. So we will definitely continue to address the opportunities for IP [inaudible] for our business in the future.”

Second Thoughts and Clarifications

I think I was wrong in thinking that bit growth for 2010 would fall short of 80%. At Lazard last week, Sanjay was asked directly about bit growth for 2010 and sure seemed to go with 80%.

“Lazard: Do you have a good estimation, do you think that the bit growth in 2010 will be similar to that found in 2009?

Sanjay: Third party reports project that the bit growth in 2010 will be approximately 80%. And the important thing to understand here is that this is bit growth 2010 over 2009. Where 2009 actually was marked by capacity under-utilization in the first half of the year.

So taking into account the capacity under-utilization of the first half of 2009 and then with the technology transitions going from 4x to 3x, which means 43nm to 32nm for us in technology transitions will be the primary drivers of bit growth during the 2010 timeframe.”

All in all, 80% bit growth should be just fine. Enough to provide healthy profits, without undermining the supply/demand balance.
****

In the clarifications department, recently when I blithely noted that the next logical step beyond the iTablet would be an SD (family) slot in the iPhone. I didn’t mean to imply that such a move was either imminent or expected, simply that it would be a logical move for Apple to make- at some point in the future.

It appears that Apple is acknowledging that SD technology is becoming the de-facto industry standard for solid state removable storage in consumer electronics.

First, Apple added SD slots in its MacBook Pro 13” and 15” models this summer. A couple of weeks ago Apple announced updated iMac models with SD slots. An Apple tablet looks like the next SD candidate.

If the rest of Apple’s product lines are using SD as removable storage, why not the iPhone? Yes, Apple has profited mightily from memory capacity differentiation to date, but times change.

As smartphones become computing platforms in their own right, it would seem logical that they will need removable storage of some variety- even the iPhone.

In the bigger picture, iPhone or no iPhone, SD is a SanDisk story to watch. SD and microSD have become primary global card formats and IP issues are locked up.

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3 Responses to X4, ITC, 2nd Thoughts and Clarifications

  1. Poofypuppy says:

    Hi Savo,

    Hope you have had a great 2009. Saw this link on the Yahoo board and was wondering if you had any thoughts about Samsung’s new DDR NAND and 3-bit MLC NAND.
    http://newswire.ytn.co.kr/newsRead.php?md=A01&tm=1&no=443575
    Would Toshiba/SanDisk be able to produce DDR NAND also, or is that proprietary to Samsung?

    Best wishes to you and everyone for joyful holidays and hopefully a safe and prosperous 2010.

    Regards,
    Poofypuppy

  2. MorganBucks says:

    Looking like the good old days. Many months ago at the start of the turn around Eli said cautiously the market was a good as he ever saw it. Since then Judy has been saying we are in uncharted waters of strong pricing. Film is dead ,Cd’s are all but, and DVD’s are on there way out, Smart phones are taking over and SSD are just a question of when now. On top of that Samsung no longer wants to try eat us before signing.

    Happy Thanksgiving!
    Morgan

    • savolainen says:

      Greetings Poofy and Morgan,

      Once again, I’m not going to have a new post up this week. I’ve been working on another project, but that’s done now, so hopefully I’ll find some rhythm again in the coming months.

      I keep this blog to help me focus. I suppose one of the reasons I’ve been letting things slide a bit is that there has been little news to speak of recently- little news that makes me nervous.

      I am also feeling OK about 2010.

      Even Q1, which seems to be ground zero for the somewhat schizophrenic split between the SanDisk bears and bulls.

      The bears seem to expect a double dose of bad news. First for the bottom to fall out of NAND pricing pummeling GMs; Then for SanDisk’s L&R revenues to fall dramatically with the new Samsung agreement.

      I am expecting a far rosier scenerio, where strong GMs and healthy L&R revenues in Q1 set up a most profitable year.

      Poofy, I don’t think DDR NAND is proprietary to Samsung. As I recall the DDR IP goes back to Rambus. There has been a lot of related DRAM litigation, but if DDR is the way to go for NAND, SNDK shouldn’t be handicapped compared to the competition.

      I am really looking forward to the SNDK analyst day early in 2010. This seems to be the SNDK forum where details such as DDR NAND are addressed.

      Morgan, a while back, ML in their upgrade commented that 2010-11 looked to shaping up to surpass the previous upturn in 2006-2007. ML was thinking OP and EPS. They didn’t think the 2005 peak would be reached. We shall see.

      BTW an acquaintance forwarded me an Intel semiconductor November presentation on economic and industry indicators. It appears interesting and relevant. I am thinking I should cull the slides and throw them up in a post. We shall see.

      Best to both of you and yours,
      Savo

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