Wafer Production

March 6, 2011

Periodically analysts ask for the details of SanDisk’s wafer production.

Invariably SanDisk notes that it doesn’t provide numbers. That said, SanDisk does provide hints, which over time give the broad outlines of production numbers.

Time to give that one a shot.

Interesting angles too. Especially the sale of wafer capacity to Toshiba in early 2009, and why the numbers don’t seem to reconcile.

Before getting to those stories, the stage should be set.

2007 and 2008 Wafer Capacity

Wafer production in 2007 was primarily a Fab 3 story.

Almost a Mega-Fab, Fab 3 has a capacity of around 150 K 300mm wafers per month (150,000 wpm). Fab 3 reached maximum capacity early 2008 as indicated by the slide below from the SanDisk Analyst Day in February, 2008.

At that time, Fab 4 was projected to ramp to 110K wpm in 2H08, also noted on the slide above.

In the second half of 2008, the SanDisk/Toshiba joint venture had a capacity of 150K wpm from Fab 3 and 110K wpm from Fab 4 for a total capacity of around 260K wpm.

All this production was split 50/50 between SanDisk and Toshiba. Each had 130K wpm.

2009 Wafer Capacity Sale

In January 2009 SanDisk sold ~20% of its captive capacity to Toshiba as indicated in slide 192 below from Investor Day 2010.

The loss of 20% of SanDisk’s wafer translates to 26K wpm and a capacity drop to 104K wpm for SanDisk and a gain for Toshiba to around 156K wpm.

The captive capacity sale was valued at $890 million. SanDisk received about 1/3 in cash and 2/3 in reduced equipment lease obligations.

At the beginning of July 2009, Toshiba turned around and entered into a long term NAND supply agreement with Apple. Apple made a $500 million prepayment to Toshiba.

Not a bad deal all around.

Apple secured NAND supply- purportedly at least according to Reuters- “about a quarter of a year’s worth of Apple’s allowance for NAND…”

Knowing Apple, they got a sweetheart deal.

Cash-strapped Toshiba got the bucks back it had to shell out to SanDisk.

SanDisk was able to strengthen its balance sheet and reduce NAND memory production commitments.

If there was anyone left on the outside looking in, it was Samsung. SanDisk had escaped its clutches. Toshiba wasn’t crippled in lending its partner a hand in its time of need.

And to rub salt in the wounds, one of Samsung’s best and most promising customers, Apple, had a supply deal with Toshiba- the competition.

It’s important to remember that these were days of oversupply. My guess is that Apple, Toshiba and SanDisk were all betting that NAND oversupply wouldn’t last long.

If so, they were right.

2010 & 2011 SanDisk Wafer Capacity

By the end of 2009, NAND had swung into under-supply.

Toshiba and SanDisk had a low-cost ace-in-the-hole in Fab 4. The wafer capacity SanDisk sold to Toshiba and which in turn Toshiba dedicated to Apple, could be made up and then some, by finishing off Fab 4.

It’s worth noting that no capacity had been added- 2009 to mid 2010.

Mid 2010, the Fab 4 push to completion began. This additional 100K wpm capacity is to be split 50/50 between SanDisk and Toshiba, and will be complete by mid 2011.

At Analyst Day 2011, SanDisk noted that by this milestone, mid-2011,  its wafer capacity will be 2M wafers/year or 167 K wpm. See slide 32 below.

The numbers don’t add up: 104 + 50 ≠ 167.

There are many explanations for the missing 13K wpm.

Personally, I am partial to the possibility that somewhere along the line, SanDisk and Toshiba had a meeting of the minds and worked out an unannounced deal whereby SanDisk bought this capacity back.

In any case, mid-2011, when Fab 4 is complete we know it will have a capacity of 210± wpm. This number added to the 150 wpm from Fab 3, gives the SanDisk/Toshiba JV a capacity of 360± wpm.

If SanDisk claims 167 wpm, that leaves 193 wpm for Toshiba in 2011, before Fab 5 is accounted for.

Fab 5 SanDisk Wafer Capacity 2011 & 2012

SanDisk has been waffling between 5% and 10%, for what Fab 5 will contribute to 2011 capacity.

At Analyst Day 2011, it’s was back up to 10%, which translates to another 16K wpm for SanDisk (rounding down) in 2011, bringing its total capacity up to 183K wpm from Fab 3, Fab 4 and Fab 5.

When complete, Fab 5 will be about the same size as Fab 4, ~210K wmp.

SanDisk can claim half of that, which it appears ready and able to do.

At Analyst Day 2011, Judy said that Fab 5 Phase 1, about half of the total Fab 5 capacity, was expected to be complete at the end of 2012.

If this is how it goes, at the end of 2012, without any other capacity buy-backs, SanDisk will have a wafer capacity of ~217 wpm. Toshiba will have a capacity of ~243 wpm.

One of Sanjay’s big points at February’s Analyst Day 2011, was that almost one in two NAND bits produced in the world today, is being produced by the SanDisk and Toshiba joint venture.

At the end of the day, all this math and speculation just means that SanDisk is nicely positioned to maintain it’s market share- as the Post PC world arrives.

Make of that what you may.

**** Postscript ****

There are other ways to figure the wafer permutations of the past- or how SanDisk has reached its current baseline wafer capacity.

The numbers used for Fab 3 and Fab 4 are probably more fluid than public announcements might indicate. Fab 3’s capacity is purportedly 150K wpm and Fab 4 210 wpm.

If, for example, Fab 3 has been pushed up to 160K wpm and Fab 4 will be able to reach 220K wpm, the extra 20K wpm – split between SanDisk and Toshiba pretty much erases the need for the awkward scenario of the off-the-record buyback of capacity outlined above.

Whatever has happened in the past in this regard, is over and done with now. We have our baseline to work off for SanDisk, because SanDisk has announced that by mid-2011 its wafer capacity will be 167 wpm or 2 million wafers per year.

Split this up as you will, but both Fab 3 and Fab 4 will be fully utilized and their wafers out at full utilization have been announced and we know the broad outlines of Fab 5’s ramp.

Toshiba’s share might be a bit more than 193 wpm or a bit less. Figuring out the specifics of what that is, well, a problem for others.

2 million wafers a year is a whole lot of wafers to control. Lots of leverage in controlling  ~20% of the world’s NAND bit supply, which is what these numbers boil down for SanDisk’s market share.

It will be interesting to see what SanDisk comes up with. This should be quite the opportunity. No doubt SanDisk’s Chief Strategy Officer, Sumit Sadana, has been carefully weighing his options.

NAND is simply a commodity in times of oversupply, but in tighter times like these, it becomes a strategic material.