Micron: Best Of Show

| About: Micron Technology (MU)

The Flash Memory Summit 2013 has just concluded. As the name implies, the flash memory summit is where the movers and shakers in the flash business meet, greet, and eat once a year and tell each other all the secrets about the past year's activity on moving flash (NAND) technology along that wonderful line called Moore's Law (I call it Moore's Observation). As with most of these industry get-togethers, the members, among themselves, choose one product that all the attending experts consider the "best of show."

Since barely a week before the show, Samsung (OTC:SSNLF) announced that it was "in production" on a new 3D NAND process. Since 3D NAND is considered the holy grail of NAND technology of the future, you would think that Samsung would be a shoe-in for the product of the year at the 2013 Flash Summit. And If you though that, you would have been wrong. The actual winner of the Best of Show award was Micron's (NASDAQ:MU) new 16nm planar NAND memory made with the HKMG (High K Metal Gate) process. In order for Micron to have won this award, the new 16nm must be a more elegant process than we thought.

A Shallow Dive Into HKMG

HKMG is thrown around as though everyone understands exactly what it means. In reality, HKMG has enabled the semiconductor process shrinks to 45nm, 32nm, 22nm, and, later this year, to 14nm. Because of HKMG, transistors will soon be 1/16 the size -- in other words, chips can have 16 times more of them -- of what they were before HKMG.

Everyone in the business knows that something needed to be done about the material for the gate of a MOS (metal-oxide-semiconductor) transistor, or else Moore's Observation would come to a screeching halt. As with many other things in life, the devil is in the details on HKMG. Basically, Intel (NASDAQ:INTC) introduced HKMG at the 45nm node after 10-plus years of hands-on research and development. HKMG required a complete overhaul of the process to make integrated circuits. To this day, the followers (copiers) of Intel's HKMG process have serious struggles understanding and using the process and materials involved.

For those of you who are curious, here is a deeper dive into HKMG that is almost understandable to us non-Martian quasi-techies.

A Look at 3D NAND

While 3D NAND is truly the holy grail of the NAND business, it is not a change of type (like HKMG) where you flip a switch and everything after that point is cheap, good 3D and everything before that point is obsolete junk. The conversion to 3D NAND will take years and will involve time consuming qualification by users, changes by systems developers to use the technologies, development of controllers for the new devices, and, since 3D NAND is more expensive and more complex to manufacture, some cost threshold will have to be crossed before companies will mass adopt 3D NAND technology in favor of the "known devil" of 2D NAND. Micron Investor Relations VP Kip Bedard covered some of the challenges in converting to 3D NAND in his Pacific Crest Technology Forum presentation beginning at the 16-minute point. Most players agree that 3D NAND will be a multi-year adoption cycle.

NAND Business Strategy for the Next Three Years

3D NAND can't come online until 2016-17, and no more money will be spent on 2D NAND since 3D development will suck all the capex into it. During this time, Micron will have -- through its 16nm HKMG process -- about a 25% cost advantage over the next best NAND manufacturer. That 16nm process will also produce 33% more chips per wafer at very little capex expense. This advantage is durable because of the use of the HKMG process that was determined to be elegant enough to win the best of show award. When Micron releases its 3D offerings, you can bet that it will involve the use of HKMG and high aspect ratio etching processes learned from its joint venture partner Intel.

The news, of course, is about Micron "stealing" Elpida, an operation that approximates the size of SanDisk (SNDK) for essentially nothing. That has overshadowed the fact that Micron has concurrently become the memory technology leader, as well as the largest merchant market supplier of memory. Elpida has handed Micron -- even with the best DRAM technology in the industry, the Intel/Micron joint venture, and HKMG -- a strategic advantage and leadership in NAND for the foreseeable future

Micron, not long ago a sick grey worm, has emerged from its multi-year metamorphosis as a strong and beautiful butterfly. By my model, Micron's stock is worth $35-$45 today. With the Cisco (NASDAQ:CSCO) driven plunge, today would be a great entry point.

Disclosure: I am long MU, INTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.