A New NAND Flash Player Emerges?

The U.S. Bankruptcy Court for the District of Delaware approved an agreement by Spansion’s debtors to transfer its Milan development facilities to Elpida Memory. Details of the agreement are unclear at the moment, however, Spansion will apparently retain IP rights for the technology developed at the research center.

Spansion established its Security and Advanced Technology Division (SATD) in 2007 and staffed it with ex-STMicroelectronics NAND flash engineers including division head, Carla Golla who prior to joining Spansion was the general manager of ST’s NAND Flash and Storage Media product group.

The division’s mission is to develop secure products such as the MirrorBit HD-SIM product family and ORNAND2. ORNAND2 - unlike ORNAND which is a Mirrorbit with a NAND interface – is a true NAND architecture based on SONOS technology. Spansion needed a NAND device for its MCPs and ORNAND2 was the solution which allowed Spansion to utilize its charge trap flash knowhow and sidestep IP issues related to floating gate devices. SATD was responsible for product design for ORNAND2 and the process technology was developed in the U.S.

Spansion had planned to ramp ORNAND2 into production in the second half of 2009 on 43nm with foundry partner SMIC. Needless to say, those plans were derailed with Spansion’s Chapter 11 filing.

Elpida has been a supplier of mobile DRAM to Spansion and has lost a major customer as Spansion exits the wireless market. In addition, Elpida is the only tier 1 DRAM company without NAND flash in its product portfolio. Being a second tier supplier of DRAM KGD (known good die) to NOR flash suppliers is an unenviable position. Elpida needs to capture more of the value-added and capitalize on the shift from NOR flash to NAND flash in the cellphone market.

Elpida’s newly acquired asset will allow it to do just that by leveraging SATD’s development of 1Gb-4Gb SLC NAND to offer NAND/DRAM MCP solutions. Whether the device will be SONOS or floating gate-based is not certain, however the fact that Spansion will retain partial IP ownership of SATD developments suggests at some sort of cooperation utilizing Spansion’s SONOS technology. This initial foray into low density SLC NAND may just portend even greater ambitions in the high density data storage market.

The First Domino Falls

After failing to secure a 325 million Euro rescue package from the German state of Saxony, Portugal's CGD Bank and parent Infineon, Qimonda today filed for bankruptcy. At the current cash burn, the package would have kept Qimonda afloat for another two quarters. Qimonda plans to continue as an ongoing concern under the auspices of bankruptcy protection, although how it plans to do so is unclear. Suppliers and business partners are likely to ask for cash upfront in any business dealings with the company, In addition, the company will need to make investments in its innovative Buried Wordline (BWL) technology to remain competitive on the technology front. It is estimated that over half a billion dollars will be required for the transition to 46nm BWL.


Now that the first domino has fallen the question is: Who's next? Spansion has delayed interest payments due January 15 on its outstanding 11.25% Senior Notes. The company has a 30-day grace period to rectify the situation and at the same time, has retained Barclays Capital to explore "strategic alternatives" including merger or selling of assets. With the meltdown in electronics demand in Q4/08 and uncertain economic environment, Spansion is going to have a difficult time of closing any "strategic alternatives". It is highly likely the company will file for Chapter 11 before the 30-day grace period is up which would be the 2nd week of February.

Taiwanese DRAM manufacturer ProMOS is another potential domino. With the DRAM prices falling below cash costs, ProMOS cut is fab capacity utilization to low double digit percentage to conserve cash. The company has also resorted to asset sales having sold NT$1.9 billion (US$56.5 million) worth of wafer test equipment to Powertech Technology, NT$580 million (US$17.2 million) 300mm front end wafer fab equipment to TSMC and US$15 million in land to Kingston.

With ProMOS' share price at NT$1.51 prior to the start of the lunar new year, well below the NT$14.7 conversion price, ProMOS faces the prospect of redeeming a $330 million Euro convertible bond due February 14. Having only about NT$5.4 billion cash (US$160 million), ProMOS has applied for a bailout package from the Taiwan government, however the government is promoting industry consolidation and indigenous technology development as the condition for any support making any carte blanche bailout unlikely. An alternative is for creditor banks to swap their ECB holdings to ProMOS shares or to extend the redemption deadline. If these efforts fail, then ProMOS' fate may depend on the rumored Elpida-Powerchip-Rexchip-ProMOS merger. If the consolidation proposal meets the indigenous technology requirements, ProMOS may find a new life under a larger entity. ProMOS will have only two weeks after the lunar new year to find out.

Micron-Nanya Deal Re-shapes DRAM Landscape

The signing of a memorandum of understanding between Micron Technology and Nanya Technology to jointly develop and manufacture sub-50nm DRAM technology re-shapes the DRAM landscape and places Nanya partner, Qimonda AG in a precarious situation. Although specifics of the final agreement are sketchy, one of the options is to form a 50/50 manufacturing JV in Nanya’s Fab3 which is only equipped to half of its full capacity. Nanya would license Micron’s 68nm technology platform and possibly participate in the joint development of 50nm and below technologies.

The following is our assessment of the impact on the various players.

Micron Technology

The big winner in this is Micron which reduces its capital intensity and increases its access to low cost Asian manufacturing capacity. In the last few years, Micron’s DRAM market share has dropped as it diversified its product portfolio into NAND flash and CMOS image sensors. As the 5th largest DRAM vendor in 2007 with roughly 10% market share, Micron is well poised to vie with Qimonda and Elpida for the No. 3 position.

Nanya Technology

It appears that Nanya, having completed joint development of 58nm trench technology with Qimonda harbored doubts about the scalability of the technology. Its concerns were validated last week when Qimonda announced the development of its “Buried Wordline” stack technology and a roadmap to continue scaling its DRAM technology based on this technology.
By cooperating with Micron, Nanya gains a clear technology roadmap for its business and more importantly, the relevant intellectual property and trade secrets required to manufacture stack technology.

The downside is that it’ll have to continue supporting two technology platforms in the next 2-3 years and absorb any manufacturing inefficiencies and additional fab investment required to make the conversion.

Qimonda AG

Qimonda loses a strong partner in Nanya and indirectly, the Formosa Plastics Group, and except for Samsung, is now the odd man out in relation to the partnerships of Hynix/ProMOS, Elpida/Powerchip and Micron/Nanya. In three years time, Qimonda may find itself in the position that Micron is in today: No. 5 and unprofitable – unless it is able to execute on its Buried Wordline technology.

A bigger issue is the impact on Inotera and the capacity implications for Qimonda.

Inotera

Inotera will have to eventually transition to stack technology whether it be from Micron or Qimonda, however, it is unlikely that Nanya will continue to work with Qimonda on the future technologies once the Micron deal is finalized. Qimonda has neither the cash nor resources to buyout and manage Inotera.

The likely outcome is for Qimonda to exit Inotera either by selling its shares to Nanya or institutional investors or to sell the shares on the open market. If it sells the shares via the open market, it may take a year to unwind its stake as Taiwan Stock Exchange regulations limit the amount of shares which can be disposed daily.

Qimonda which obtains 50% of the 120k wpm capacity from Inotera will lose out on 60k wpm which will not be easily replaced.

Perhaps a harbinger of the future of Inotera and the intense negotiations going on between Nanya and Qimonda, the domain name www.inotera.com has expired.

ProMOS

Infineon exited ProMOS after a nasty spat with partner Mosel Vitelic. ProMOS has been having difficulties in obtaining 66nm technology from Hynix due to Korean government restrictions on the export of advanced sub-80nm technologies. Is re-marriage in the cards for the former Infineon/Qimonda partner? Difficult to say, but don’t expect Hynix to give up on ProMOS without a fight.

Winbond, SMIC

Expect Qimonda to shore up its alliances with Winbond and SMIC. It needs the capacity. Winbond and SMIC have the upper hand and should be able to negotiate more favorable terms for producing the Buried Wordline technology. A deeper relationship with Winbond could be in the offing.

Market

It is unlikely to impact the supply-demand situation in the short term, but could negatively impact the supply-demand in the mid-term as competitors react by increasing output to maintain market share.
The Micron-Nanya cooperation creates a more formidable competitor in both the DRAM and NAND space and sets up Micron to become one of the top three memory vendors along with Samsung and Hynix. Elpida and Qimonda, pure DRAM vendors are looking for a NAND play. Stay tuned.

Qimonda Digs Itself Out of Trench

Qimonda created a stir last week when it unveiled a new DRAM technology called “Buried Wordline Technology” which purportedly consumes less power than conventional stacked capacitor DRAMs. This is achieved by reducing the capacitive coupling between the bitline and wordline by burying the wordline in the substrate of the device. An image of the buried wordline in Qimonda’s presentation appears to show tungsten as the wordline material. The middle of line process in the memory array is greatly simplified compared to standard stacked capacitor devices resulting in reduced process complexity.

Another surprising feature was the absence of a trench capacitor. Qimonda has responded to skepticism regarding the scalability of trench technology by switching to a cylindrical stacked capacitor for its DRAM roadmap down to the 3xnm generation. Qimonda plans to ramp its 65nm buried wordline technology with cell size of 6F2 in parallel with its 58nm 8F2 trench capacitor technology in the second half of 2008. The 65nm 1Gb device sports a die size of 55mm2 comparable to Micron’s 68nm 1Gb DDR2 chip size of 56mm2.

Subsequent 46nm and 3xnm 6F2 generations will be introduced in 2009 and 2010 respectively with a 3xnm 4F2 technology targeted for 2011. According to Qimonda, the 46nm technology is expected to effectively double the number of die per wafer versus the 58nm trench technology allowing the company to take the lead in productivity vis-à-vis the competition. This productivity boost is particularly important for driving down costs, especially in light of the massive €598 million net loss the company posted in the fourth quarter of calendar year 2007 on net sales of €513 million.

Qimonda stated that an incremental investment of €100 million over its existing investment for trench technology would be required to make the transition to the new technology. This would include deposition and etch tooling for hi-k capacitor formation.

The company hinted that the new technology opens up partnering opportunities which is expected to include Qimonda’s manufacturing and foundry partners, Winbond and SMIC although Inotera's participation is questionable given the recent tie-up between Nanya and Micron Technology. If licensing deals with these parties are reached, they would be expected to make similar investments for the conversion from trench to stack technology.

Currently, Qimonda, along with partner Nanya Technology, are the sole remaining DRAM players engaged in the development and production of trench capacitor DRAM technology accounting for a combined 18% of the DRAM market in 2007. The remaining 82% consists of Samsung, Hynix/ProMOS, Elpida/Powerchip and Micron Technology, which are all part of the stacked capacitor camp. With Qimonda’s announcement, trench technology is expected to be phased out of the market in the next three years.

It is also difficult to ignore the timing of the announcement. It appears that Qimonda was pressured to reveal details of its roadmap plans after rumors of a joint development and production agreement between its partner, Nanya Technology and Micron Technology surfaced. The rumors were subsequently confirmed when a memorandum of understanding was announced between the two parties on March 3.