After Samsung Electronics (OTC:SSNLF) rolled out the first 3-D storage chips in 2013, storage chip manufacturers SK Hynix (OTC:HXSCF) and Micron Technology (NASDAQ:MU) (partnered with IBM) revealed their plans to develop and mass-produce their own 3-D chips. Last week, SanDisk Corporation (SNDK) and Toshiba (OTCPK:TOSBF) announced their joint decision to produce 3-D chips on a mass scale. SanDisk has been focused on expanding its planar (or 2-D) technology with the launch of the new 15 nanometer chips in April. However, the constant reduction in process node sizes of conventional chips has made lithographic work more complex. Additionally, the gain in storage capacity doesn’t necessarily justify the massive cost involved in developing the technology, as smaller node sizes (<20 nanometers) begin to lose efficiency. 3-D NAND chips aim to combat these problems with vertically stacked chips rather than planar arrangement in conventional chips.
Every year, the advancement of technology has led chip makers to accommodate more data on chips while simultaneously shrinking their physical size. But reducing the size of process nodes further from the commonly used 20 or 19 nanometers to 10 nanometers has proved challenging and has affected the performance of these chips. Although the idea of 10 nanometer process nodes hasn’t been completely ousted, it is likely that different cell design methods gain popularity among manufacturers. In addition to becoming a very challenging task, the cost involved to further reduce the size of process nodes may outweigh the storage space/capacity gained.
The 3-D card involves a new technology that aims to solve that problem; 3-D technology stacks the chips vertically in an array, unlike planar NAND technology where the chips are arranged like a grid. Moreover, 3-D chips do not require extremely precise lithography, which makes them cheaper to produce than advanced planar NAND chips. Samsung claims to produce V-NAND (or Vertical-NAND) chips which are 2-10 times more durable and reliable than planar NAND chips. Additionally, these chips provide twice the scalability of the current 20-nanometer planar NAND flash. Furthermore, Samsung’s 3-D solid state drives (SSD) consume 20% less power than planar multi-level cell NAND-based drives.
Where SanDisk Stands On 3-D
SanDisk and Toshiba entered into an agreement, where Toshiba will demolish its existing Fab 2 manufacturing plant in Japan and build a new wafer facility which will produce 3-D chips. The deal is reportedly worth 500 billion yen ($4.84 billion). Toshiba will cover the initial 40 billion yen ($390 million) in expenses of converting the existing facility into a new one and SanDisk will then later invest in the facility. The new facility is scheduled to be completed by 2015 and production could start by early 2016.
The SanDisk-Toshiba chips will hit the market significantly later than competitors Samsung (2013), Hynix (early 2014) and Micron (2014). The main reason for this time lag is SanDisk’s continued focus on small size (<19 nanometer) chips and 2-D technology. Experts believe that it is not a question of if, but when the 3-D chips will replace the existing technology.
The added durability, lower cost of production and increased scalability suggests that 3-D or vertically stacked chips could be the future of storage blocks, although it will be a few years before the technology becomes mainstream. Initially, the V-NAND offered by Samsung had nearly the same storage density as a corresponding conventional planar NAND. But with the increase in demand, the density gap has increased significantly. Samsung plans to invest a further $4 billion in its chip manufacturing division through March 2015, giving it a significant head start in this area.
The mass production of 3-D chips could have long term benefits for SanDisk, as the demand for data is only going to continue to increase. With the kind of scalability offered by 3-D technology, it seems like it could ultimately replace the conventional planar technology. A possible downside for SanDisk could be if the 3-D chips produced by Samsung and Hynix gain popularity before SanDisk-Toshiba even begin production. Given the very limited market presence of 3-D chips right now, it's difficult to predict how soon the market adopts the new chips. However, in the long run, storage chip manufacturers are likely to rely heavily on vertical stacking.
If 3-D chips gain traction from next year and become more widely adopted in internal storage of smartphones, wearable portable devices and laptops, it could lead to a reduction in SSD prices. If SSD prices fall to about 40 cents per GB, it could cut into SanDisk’s margins. We currently forecast SanDisk’s margins to remain flat over current values. A conservative reduction in gross margins by 2-3% in both the flash cards and enterprise storage division from 2014 through 2016 could lead to a 3% downside to our $86 price estimate for SanDisk.
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