Samsung (NASDAQOTH:SSNLF) has been mass-producing 3D NAND modules since August last year. However, other leading flash-memory manufacturers -- namely, Toshiba (NASDAQOTH:TOSBF), SK Hynix, and Micron (NASDAQ:MU) -- are still testing and sampling their respective 3D NAND modules. Can this technological head start propel Samsung's growth over the coming year?

Understanding technical jargon
Since the 1960s, memory manufacturers have increased their flash-memory density by stuffing more NAND gates on the same die. This was achieved by shrinking their fabrication process. However, we've reached a point where the chip-manufacturing process can't be shrunk further without compromising economic feasibility -- something referred to as "scaling limit."

To overcome these lithographic limitations, Toshiba first introduced the 3D NAND technology back in 2007. These modules comprise regular NAND strings, but they are stacked vertically instead of horizontally. By boosting the performance while increasing chip density, this structural stacking delivers twice the benefits. 

Samsung, at the unveiling of its V-NAND modules last year, explained that its 40nm 3D NAND has an effective lithography of 10nm planar NAND. Consequently, the performance gains were fantastic. As compared to a planar NAND module of the same process, Samsung claims that its 3D NAND chip is twice as fast, consumes 50% less power, and lasts up to 10 times longer. 

Stacking up against the peers
Toshiba and SanDisk are jointly developing their mass-producible 3D NAND modules -- Bit-Cost-Scalable NAND, or BiCS. TrendForce estimates that the construction work at Toshiba's Yokkaichi plant will be complete by the third quarter of 2014. In the following quarter, the corporate couple will begin the mass production of their 3D NAND modules.

Speaking of Micron and SK Hynix, TrendForce estimates that both companies will deliver their 3D NAND modules to their respective clients during the second quarter of 2014. After their chips pass rigorous sampling tests, the mass production of their next-generation flash modules will begin by the fourth quarter of fiscal year 2014. 

Investors, however, shouldn't expect Samsung to benefit immensely from this head start during 2014.

Growth potential
TrendForce estimates that 3D NAND shipments will represent 3% of the total NAND industry during 2014 and 20% by 2015. Considering that Samsung generates just 4.3% of its revenue from NAND sales, the limited contribution from 3D NAND modules during 2014 won't have a significant impact on its overall earnings. 





SK Hynix

NAND Revenue





Total Revenue





NAND Contribution





(All figures are in billions, extracted from Q3 2013 results)

Heading into 2015, however, Samsung can generate sizable returns from the relatively mature 3D NAND industry. The company has been working on increasing its V-NAND chip yields, which will contribute in lowering its production costs by 2015. Moreover, the technological head start will enable Samsung to fix known issues with its 3D NAND modules before its peers, thereby giving it a competitive advantage. 

Foolish final thoughts
With the adoption of 16nm fabrication process, flash manufacturers might find it difficult to transition to economically feasible smaller 2D geometries. That's where 3D NAND modules will come into play, and eventually replace planar NAND.

Investors, however, should also note that these 3D NAND modules are more expensive than planar NAND modules. Their adoption will depend on key factors like production yields, average time before failure, reliability and economic feasibility on different scales. So, investors should keep a close eye on these metrics as well. 

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Piyush Arora has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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