Seagate to Purchase SanDisk? Definitely, Maybe Not

Rumors are flying about Seagate buying SanDisk or Intel's stake in Intel-Micron Flash Technologies (http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=210004140). Does it make sense? Seagate does need access to low cost NAND flash to fuel its SSD ambitions. Here are some ways to think about it.

1. If Seagate were to purchase SanDisk or Intel's portion of IMFT, what are they going to do with all that capacity? SSDs are not going to be able to eat up all that capacity, at least not for the next couple of years. Does Seagate want to manufacture flash memory cards or supply to MP3 players? SanDisk's operating margin in 2007 was 8% and Seagate's 6.8% in FY08. However, if you strip out income from royalties and licensing, SanDisk's operating margins were -5%. Combining a primarily OEM HDD business with a low margin retail business could be challenging.

2. Seagate is primarily interested in enterprise SSDs which uses exclusively SLC NAND flash technology. Any SanDisk acquisition provides Segate with 150k 300mm wafers per month of MLC NAND technology. Spending $4 billion (market cap of SanDisk) to obtain MLC NAND flash technology for enterprise SSDs? (SanDisk and partner Toshiba currently do not manufacture any high density SLC NAND parts, although that could change in the near future.)

3. Seagate spends almost $1 billion in capex ($930m in FY08) p.a. in their HDD business. SanDisk in 2007 spent roughly $1.6 billion and Intel $1 billion in NAND flash. Looks like Seagate's capex would have to at least double if it wants to become a NAND flash manufacturer and it's balance sheet would be strained supporting such a high level of investment.

4. Intel is not ready to exit NAND flash, at least not in the near term. IMFT has typically been behind the technology leaders by 1-2 process generations. With the 34nm announcement, they are about to leap ahead. With the technology lead, IMFT will presumably have the lowest costs. In addition, Intel will be releasing a slew of competitive SSD offerings in the next months. If, with the lowest costs in the industry and a very strong product lineup, Intel still can't make money, then it will consider whether it makes sense to be in this business, but they're not going to quit before giving it their best shot.

Seagate needs access to low cost NAND flash and they don't need to obtain that access by getting into the retail flash card business or doubling their annual capex. They could achieve the same means by either investing a small equity stake in a NAND flash vendor or placing an upfront payment to secure NAND flash capacity at preferential pricing. Apple did something similar when it introduced its first flash-based iPOD. Such an arrangement also affords Seagate sourcing flexibility especially if those wild hockey stick projections of SSD shipments don't pan out.

Intel and Micron Leapfrog the Competition

Intel and Micron announced today that it will be sampling a 34nm 32Gb MLC NAND flash to customers in June with production slated for the second half of 2008. Owing to the aggressive gate half-pitch, immersion lithography with self-aligned double patterning employing spacers is most likely being used. Also expect changes in the bitline and wordline materials as well as a higher k interpoly dielectric in comparison to the 50nm generation.

At 172mm2, Intel-Micron's 32Gb product will be the only 32Gb monolithic MLC device capable of fitting in a TSOP package. If the ramp of IMFT's 50nm 16Gb device is any guide, we should expect to see volume in December or in early Q1/09. It's quite remarkable that Intel-Micron have managed to catch up and surpass the other NAND flash vendors on process technology in the short span of three years. IMFT achieved this milestone by skipping the 6xnm and 4xnm nodes. However, any cost advantage could be short-lived if IMFT fails to ramp up the technology smoothly and SanDisk/Toshiba ramps its 43nm 32Gb x3 in Q1/09 as planned.

SanDisk's 3-Bit/Cell NAND Flash Technology Not a Short-Term Play

The development of a 16-gigabit 3-bit per cell (x3) NAND flash on 56-nanometer process technology by SanDisk and Toshiba offers the promise of further NAND flash memory cost reductions.

Due to higher design complexity, lower number of usable blocks and longer test times, x3 technology is expected to offer approximately 20% cost savings over comparable MLC devices at the same process generation.The key innovation of the x3 16Gb chip is the write performance of 8-megabytes per second (MB/s).

This outstanding performance is comparable to 5xnm MLC devices currently on the market and was enabled mainly through the development of an All Bit Line [ABL] architecture and advanced programming algorithms. ABL will also be deployed on all of SanDisk/Toshiba’s MLC devices boosting write performance to 34MB/s – comparable to SLC devices on the market.Alas, the full cost benefits of x3 won’t be realized for another two years, the reason being x3 is currently about one year behind MLC on the technology roadmap.

Nevertheless, Samsung and Intel - Micron Flash Technologies are expected to join the fray in 2008/9 and by 2012, 3-bit per cell NAND is forecast to account for 52.8% of NAND flash memory bits, followed by MLC NAND at 25.4%, 4-bit/cell NAND 16.6% and SLC NAND 4.4%.