SanDisk's Key Growth Driver: ULLtraDIMM SSDs

Jul.28.14 | About: Western Digital (WDC)

Summary

ULLtraDIMM SSDs will strengthen SanDisk's market position in the enterprise segment.

ULLtraDIMM drives are currently the fastest enterprise-scale SSDs.

Revenue contribution to grow significantly over the coming years.

SanDisk (NASDAQ: SNDK) has been the longstanding and leading disrupter in the digital storage industry since its inception. The pure-play flash memory manufacturer, earlier this year, made headlines when it unveiled its ULLtraDIMM solid-state drives, or SSDs. And this new product launch, similar to its previous successful ones, appears well positioned to fast track the chipmaker's growth going forward.

Dominant technologies

It's worth noting that a computing processor knows nothing about an SSD interface. It requires a controller that helps both the devices to communicate with each other, so that digital information can be shared in the form of bits.

Investors should note that the mass-popular SATA interface doesn't offer the fastest data transfer rates or access latencies. In fact, SATA controllers can create a latency overhead of 1µ second due to their design issues. For this reason, SATA drives aren't generally equipped in high-performance computing machines.

The SAS interface, similar to the SATA bus, also uses a serial interface. But where SATA drives have a maximum spin-speed of 7200 rpm, SAS drives offer a much faster spin of about 15,000 rpm. Plus, their controllers can simultaneously access multiple drives, making them much faster than their SATA-based counterparts.

The PCIe interface, however, is the fastest amongst its mentioned peers. Using software drivers, a computing processor is directly able to communicate with PCIe-based drives. This lowers the disk latency, but its software drivers consume about 50% of CPU resources. Therefore, none of the mentioned technologies offer seamless data transfer without drawbacks.

Rapid flash

SanDisk's entry into the field of DIMM-compatible SSDs, with its ULLtraDIMM drives, was one of the most notable developments in the NAND industry this year. These modules are designed to work on idle DRAM slots, which connects the NAND module directly with the CPU without needing any driver support.

Consequently, SanDisk's ULLtraDIMM drives sport an industry-wide low write-latency of 5µ seconds. This is about 800 times faster than conventional hard drives, and about 10 times faster than established and enterprise-preferred PCIe-based SSDs - something that proves particularly useful in CPU and disk intensive tasks like high frequency trading, or online transaction processing.

RBC estimates that the penetration rate of DIMM-dedicated SSDs will reach 10% during 2015. And SanDisk, currently the only publicly listed mature NAND manufacturer to offer this revolutionary technology, will be one of the few suppliers of this technology - something that will allow it to charge a premium.

RBC projects that ULLtraDIMM SSDs will boost SanDisk's 2015 EPS by about $3- which is about 263% higher than its overall fiscal year 2014 EPS.

Industry-wide landscape

This next-gen technology already has a major buyer. IBM (NYSE: IBM), one of the leading high-performance server manufacturers, has signed-up with SanDisk to equip these speedy drives in its X6 servers. This highlights IBM's continued efforts to retain its market share in the high-margin and high-performance server segment.

Market realist notes that Intel (NASDAQ: INTC) is the largest manufacturer of enterprise-scale SSDs. The company, however, currently has no plans to venture into the DIMM-dedicated SSDs. If the demand for these drives picks up rapidly going forward, Intel might consider entering the segment. By then, however, SanDisk would've established its market position and perhaps even fixed known bugs with these next-gen memory modules.

Foolish final thoughts

Needless to say, if equipment manufacturers follow IBM's footsteps and equip ULLtraDIMM drives in their top-tier servers, SanDisk's market position will further strengthen. This would propel SanDisk's growth going forward, as RBC's earnings projections estimate.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.