Why NAND Flash?
Traditionally hard disk drives from Seagate (STX) and Western Digital (WDC) have dominated the data storage space. Hard disk drives offer incredible storage space for the money but are slower, more power hungry, and are much less conducive to ultra-thin form factors such as smartphones, tablets, and even thin laptops. Further, as mobile devices rely increasingly on the cloud for data-storage, cloud infrastructure benefits greatly from acceleration from flash based storage.
It is my belief that the companies most suited to benefit from a major industry-wide shift to flash based solutions are those companies that control the production of NAND flash. Since the largest cost in the bill-of-materials for a solid state drive is by far the NAND flash, these companies have stronger pricing power, better margins, and the ability to sell NAND to fabless drive vendors. Without further ado, the following companies represent solid bets in a flash-based future:
1. Micron (MU)
Micron is a semiconductor company that develops a number of memory technologies, most notably DRAM and NAND flash. The firm co-owns NAND manufacturing plants with Intel (INTC) via the Intel-Micron Flash Technologies joint venture. In Q1 2012, Micron captured 17% of NAND market share, third after Samsung and Toshiba.
Micron, in addition to selling NAND to fabless drive manufacturers, designs and markets drives under its own brand. On the consumer side, Micron's subsidiary "Crucial" sells its "M4" brand of SATA solid state drives, which isn't the fastest or flashiest drive on the block, but it is reliable and "good enough". Especially since the NAND flash is built in-house, giving Micron a pricing advantage over rivals.
In the enterprise space, Micron has a PCI-E offering, but it is not a particularly competitive solution compared to Intel's SSD 910 or OCZ Technology Group's (OCZ) Z-Drive R4 in terms of performance. Micron's main presence in this space is as a NAND flash supplier.
To learn more about Micron, I suggest my article entitled "Micron: Why This Piece Of The Computing Puzzle Is Crucial" and a piece by Cris Frangold entitled "Micron: A $6 Stock Worth $15".
2. SanDisk (SNDK)
SanDisk is a flash solutions provider, supplying a whole range of flash based products including embedded flash solutions, solid state drives for PCs, USB flash drives, and removable flash cards for use in a wide variety of applications. The firm builds its own flash memory, giving it a fairly nice "moat" compared to a number of its competitors.
There are numerous reasons to consider SanDisk as the flash player of choice for your portfolio:
- Consumer SSD growth has been strong, and in the most recent quarter this segment grew to be 10% of total second quarter revenues. As "big data" moves to the cloud, consumers will continue to opt for SSDs rather than hard disk drives in new systems. Further, SanDisk's retail presence allows its products to see adoption by people looking to upgrade existing machines with solid state drives
- SanDisk has been making meaningful strides in the enterprise SSD space, offering both SAS and PCIe solutions. The acquisition Pliant, an enterprise SSD maker, seems to be paying off quite nicely
- The recent collaboration with Marvell (MRVL) to release storage micro-servers for enterprise cloud storage should prove to be interesting
- Also in the enterprise space, SanDisk's recent acquisition of FlashSoft is allowing the firm to make progress in the enterprise flash caching space dominated by the likes of Fusion-IO (FIO). This is a high margin business (since the biggest costs are in the software) that, coupled with SanDisk's own hardware, should be a solid area of growth on the top and bottom lines.
- The company is also strengthening its presence in smartphones with its multi-chip package solutions which consist of NAND and DRAM on the same package. Analysts speculate that SanDisk's flash chips may even be used in the upcoming iPhone 5
Disclosure: I am long INTC and I may initiate a long position in MU over the next 72 hours.