WD Buys its Way into SSDs

Western Digital Corp., the 2nd largest HDD maker, announced that it had acquired SiliconSystems, Inc. for $65 million in cash. SiliconSystems is a major supplier of embedded SSDs to the network-communications, industrial, embedded-computing, medical, military and aerospace markets.

WD is no stranger to SSDs having dabbled in the technology in the early 1990's and being a founding investor of SanDisk which also developed flash-based SSDs in the same time period. However, it appears that early experience wasn't enough for a latecomer to catch up to the vast improvements in performance and reliability made by SSD vendors recently. System-level solutions particulary on the firmware side are required to manage the increasing complexities of NAND flash with each new technology generation.

WD is now able to leverage SiliconSystems' knowhow and IP to accelerate its development of SSD computing solutions. This knowhow combined with WD's branding and client relationships could make WD a formidable SSD vendor and validates the market opportunity provided by SSDs.

This acquisition will compel HDD suppliers to review their own internal development plans and may be the first with others to follow.

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.

Fujitsu Next

Intel Corporation and Hitachi Global Storage Technologies announced that they will jointly develop Serial Attached SCSI (SAS) and Fibre Channel (FC) enterprise class solid-state drives (SSDs) for servers, workstations and storage systems. This is an exclusive agreement to develop and deliver SAS and FC enterprise SSDs with availability of the first products in early 2010.

This is a complementary partnership marrying Hitachi GST’s drive, channel and system knowledge together with Intel’s NAND flash and flash management expertise. Hitachi selected a strong NAND flash partner that doesn’t compete with it in its core HDD business. Now that two of the three enterprise HDD makers, Seagate and Hitachi, have publicly announced plans for enterprise SSDs, Fujitsu will be compelled to react, especially with its 23% enterprise HDD market share to protect.

Seagate may feel it is big enough to source the NAND flash and develop the SSDs on its own however, Fujitsu may need to develop a partnership with a NAND flash vendor. Two possible candidates: Micron and Hynix - NAND flash vendors with SSD ambitions but no competing HDD businesses. Micron has flash management expertise acquired through its own SSD development and leading cost structure based on 34nm technology. On the other hand, Hynix is lagging on both the SSD and NAND flash technology front.

If rumors of Western Digital acquiring Fujitsu's HDD business are correct, a company that has sat on the sidelines as companies have rushed into the SSD market will have to finally step up to the plate.

Spansion Becoming an IP Company

Struggling to achieve profitability in its core business, Spansion has now turned to monetizing its portfolio of 3,000 patent and patent applications. Its first victim: Samsung. Spansion has filed two separate patent infringement claims against the company with the International Trade Commission and in the U.S. District Court in Delaware. Spansion is seeking an injunction in both cases on the sales of electronic devices containing Samsung flash memory and requesting treble damages in the Delaware claim for knowingly violating the patents.

Spansion is claiming Samsung infringed on 10 patents with four of them filed in the ITC complaint and six in the Delaware claim. The patents in question are related to NAND flash memory and include process patents describing methods of forming of the interpoly dielectric, shallow trench isolation as well as programming schemes. The patents, granted between 1998 and 2002, were filed by AMD, the pedigree of Spansion. AMD developed NAND technology and introduced a 64Mb UltraNAND on 0.25um technology in 1998. UltraNAND was supposed to do one better than NAND - 100% good blocks and 100k program/erase cycles without ECC - but it never took off and was subsequently shelved.

Why didn't Spansion instead go after Samsung, the No. 3 NOR vendor, with its much larger portfolio of floating gate NOR flash patents? Any successful claims against Samsung are likely to hurt more on the NAND side because of the size of Samsung's NAND business and the more diversified customer base. In addition, it's harder for Samsung to strike back because Spansion has no products based on floating gate NAND.

Spansion also claims to have the strongest portfolio of patents related to charge-trapping (CTF) technology which may be required to extend NAND flash below 30nm. However, it's not clear how applicable Mirrorbit patents are to SONOS NAND because the programming/erase mechanisms and gate stack are different. Spansion may be trying to plug that hole by commericalizing the first SONOS NAND - ORNAND2. In addition to satisfying its own demand for a NAND device in its MCPs, ORNAND2 is also a learning vehicle for developing CTF NAND IP. It'll be interesting to see what innovations Spansion introduces when ORNAND2 starts ramping in production the 2nd half of 2009 on 43nm.

Step 1?: Micron Closes Inotera Deal

Micron and Qimonda finally closed a deal to transfer Qimonda's 35.6% stake in Inotera for $400 million. The move was widely expected given the termination of Nanya and Qimonda's joint DRAM development activities and Nanya's joint DRAM development and manufacturing ventures with Micron.

The acquisition of Inotera will allow Micron to merge its manufacturing JV with Nanya, Meiya, into Inotera - akin to a backdoor listing - and allow Meiya to access the capital markets immediately. The original plan was for Meiya to go IPO three years after the start of operations and obviously, there's no need for that anymore.

Micron paid only $400 million for 50% of the capacity of Inotera or 60k wpm. A 60k wpm fab would've cost them $2.7 billion to build - quite a bargain. However, Inotera will have to install copper tooling for the 68nm process plus convert from trench to stack process. This will require about $800 million although this won't necessarily come out of Micron's pocket.

As for Qimonda, it's a new lease on life. They would've burned through their cash by the end of the year wthout the cash injection from the deal. They're closing Richmond 200 and getting out of consumer and mobile DRAMs to focus on areas where they're strong - infrastructure and graphics. Whether that is enough for them to survive as a standalone company is questionable given the fact that Inotera accounted for roughly 1/3 of QI's internal wafer capacity and the importance of economies of scale in memory manufacturing. They will at least need to re-engage with Elpida in the joint development activities to reduce the R&D burden. Or maybe the Inotera deal was just step 1 in a phased acquisition of Qimonda and step 2 and 3 are in the offing.

Why does Samsung need SanDisk?

There’s been a lot of speculation and analysis on why Samsung would acquire SanDisk. Here’s my take.

1. Samsung needs the capacity. – Samsung has enough capacity, especially in this market.

2. Samsung is attracted by SanDisk’s retail reach. – Samsung has a strong retail brand and could have leveraged its own retail channels to push flash cards through its distribution network if it wanted to. Why do it now?

3. Samsung saves on royalty fees and the savings justify an acquisition. – Pay $3 billion (SNDK’s market cap) to save on $400 million a year? Sounds pretty good. >10% ROI. But the level of that royalty stream is not guaranteed and I don’t think Samsung would do a deal just to save on royalty payments.

4. Samsung wants the IP. – Sometime in the next few years, FG NAND flash is likely to hit a brick wall and an alternative technology will be required. CTF has its problems and one of the potential options is 3D memory (see http://forward-insights.blogspot.com/2008/06/sandisk-and-toshiba-to-jointly-develop.html). SanDisk appears to have some fundamental IP in that area. Sure, Samsung could negotiate an extension to their existing cross licensing agreement with SanDisk to include 3D memory but they don’t get the knowhow. The knowhow is what is going to allow the leaders to scale the brick wall.

Samsung is not known for big acquisitions and its last big acquisition of AST Research 20 years ago is not considered a success. And it’s hard to imagine SanDisk’s manufacturing and joint development partner, Toshiba standing idly by as Samsung takes ownership of SanDisk’s most prized assets.

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.

Finally! A Simple Metric for Solid State Drive Endurance

We've all seen the impressive MTBF (mean time between failures) specifications of SSDs versus HDDs of one to two million hours versus 600 thousand hours in a notebook pc class application. However, unlike HDDs where a mechanical failure can make the entire HDD unusable, the main failure mechanism in a SSD relates to the memory cells becoming unusable. MTBF is a statistical calculation that unfortunately, does not capture the effect of write endurance.

The write endurance of a SSD is a function of the type of flash memory used (SLC, MLC), storage capacity, frequency of writes, data sizes of the writes and the amount of static data which relates to the wear leveling algorithm. System level endurance of SSDs in the industrial, enterprise and miliary space have ranged anywhere from one million to five million program/erase cycles. There are three main problems with this.

1. The endurance will depend on how the SSD is used in the application. As a result, SSD vendors can tweak the parameters for their own marketing purposes.

2. Not all SSD vendors use the same formula for calculating the endurance and the formulas can be overly complex.

3. A straight endurance metric is nebulous and difficult to grasp its implications, especially for OEMs who've never had to grapple with endurance issues in HDDs. For example: What's the effect on the lifetime of the drive?

SanDisk aims to solve this with the Longterm Data Endurance (LDE) metric. LDE is simply defined as the total amount of data writes allowed in the lifespan of the SSD. The metric is based on the Bapco write usage pattern for a typical business user and assumes the data is written equally over the lifetime of the drive and that data is retained for one year once the LDE specification is reached.

LDE allows OEMs a simple way to compare SSDs and determine, based on the applications usage patterns which drives are suitable for a particular application. For example, a drive with an 80TBW (teraByte write) LDE can support 20GB writes per day for 10 years (equivalent to 73TBW). For an application requiring support for only half the number of writes per day (10GB), a 40TBW rated drive would be sufficient.

The beauty of LDE is that it captures endurance in one single, understandable figure. A common metric is necessary to facilitate SSD adoption moving forward. Now comes the hard part: garnering support from other SSD vendors and OEMs.

I've uploaded a copy of Don Barnetson's presentation on LDE, "Solid State Drives: The MLC Challenge" on my website at http://www.forward-insights.com/.

Samsung Introduces Server-Grade NAND flash for SSDs

Samsung Electronics announced today that it collaborated with Sun Microsystems to develop a SLC NAND flash memory with five times the endurance of conventional NAND flash memory. This would put the "ultra-endurance server-grade" flash memory at 500k program/erase cycles.

To extend the endurance, Samsung likely tweaked the underlying cell process and/or modified the programming algorithm. The net result is that the improved endurance comes at the expense of reduced performance or retention. However, by targeting high transactional enterprise applications with this device, the degraded retention should not be an issue.

SanDisk and Toshiba to Jointly Develop 3D Memory

In a SEC filing today, SanDisk disclosed that it had signed a collaboration agreement with Toshiba for re-writeable 3D memory. Both companies will cross-license related IP to each other and SanDisk will receive licensing payments from Toshiba.

Investment for SanDisk-owned equipment which includes tooling for 3D R/W and 3D OTP memory is forecast to amount to $400 million in 2009 and $200 million in 2010.

The 3D R/W memory which consists of stacked vertical diode arrays shares most of the process modules and design architecture concepts with the 3D OTP memory. In the case of 3D OTP memory, four layers of stacked memory cells are in volume production at the 80nm node with 45nm currently under development.

A four level 3D R/W memory will have to at least catch up with NAND flash on process technology to be considered competitive with x4 NAND flash. This would put 3D R/W memory at least 3-4 years out. The other issue is whether an eight level stack is manufacturable at high yields. An eight-level stack was demonstrated by Matrix in 2003 on a much less advanced 0.25um geometry. Producing eight level memory stacks at leading edge technology is another matter.