Shift to 3D NAND Will Benefit Samsung, Micron, and Seagate

3D NAND will replace 2D NAND in the coming years. Have you adjusted your portfolio accordingly?

Feb 11, 2014 at 10:30AM

Striking changes are occurring in the NAND industry. Samsung (NASDAQOTH:SSNLF) began the mass-production of its 3D NAND modules in August last year, which compared to its planar NAND modules, are twice as fast, last 10 times longer, and consume 50% less power. Micron (NASDAQ:MU), SK Hynix, Seagate (NASDAQ:STX), and Toshiba intend to follow suit and are currently developing their respective 3D NAND technologies. But, how exactly will 3D NAND make its place in the flash memory industry? Let's find out.

How is 3D NAND better?
Whether it's 2D or 3D NAND, the cost of manufacturing flash modules largely depends on die size.

To cut production costs, memory manufacturers strive to cram more transistors onto the same die by shrinking their fabrication process. However, we've reached a point where chip lithography can't be shrunk any further, thereby suggesting that the cost of planar NAND modules can't be drastically reduced.

To utilize the die area more efficiently, Toshiba introduced its 3D NAND technology back in 2007. These modules consist of vertically stacked NAND strings, which squeeze more transistors into the same die area. Thus, these next-gen flash modules offer better performance, higher density, and lower cost per GB. 

According to Samsung, its 40nm 3D NAND produces an equivalent lithography of a 10nm planar NAND. As explained by Crossbar, a 3D NAND module fabricated using a regular 20nm process would produce an equivalent planar NAND process of 5nm. Therefore, mass-produced 3D NAND modules offer scalability at relatively lower costs. 

Adios, 2D NAND?
Jim Handy of Objective Analysis explained that, since the fabrication process of 2D NAND is not shrinking, planar flash drives will continue to cost 10 times more than equivalent hard drives. This pricing barrier would be detrimental to the adoption of enterprise-scale planar flash drives, which is where 3D NAND will shine. 

Enterprise SSD clients struggling to meet rising data storage needs will have to adopt 3D flash drives due to their high density and low cost per GB requirements. DRAMeXchange believes that this shift will propel 3D NAND's market share to 20% in 2015, up from 3% in 2014. IHS, being slightly more bullish, expects 3D NAND market share to expand to 49.8% by 2016. 

Thus, the future looks bright for 3D NAND industry.

How this may impact companies
Since Samsung has been mass-producing enterprise scale 3D NAND modules since August last year, it has a technological head start. This enables the company to fix known bugs with the 3D NAND technology, before its peers. The company has managed to increase its production yield, which, according to DRAMeXchange, will enable it to lower production costs by 2015. 

Micron is another formidable competitor. Jagadish Iyer of Piper Jaffray believes that the company will be sampling its next-gen non-volatile memory in the first half of 2014, and begin the mass production of its 256GB 3D NAND drives early next year. Meanwhile, the pure-play memory manufacturer will shrink its planar NAND fabrication process -- one last time -- to 16nm, which can later be utilized in the fabrication of its 3D NAND modules.

Investors scouting for a diversified memory manufacturer should consider investing in Seagate as well. The company manufactures hard drives and solid state drives, and plans to sample its 3D NAND modules during the first half of 2014. It has a strong foothold in the enterprise SSD and HDD segments, which altogether represents 39% of Seagate's overall gross profits. Plus, the company's entry into the 3D NAND industry will expand its product portfolio, strengthen its enterprise market position, and result in a balanced growth. 

Foolish final thoughts
3D NAND is evolving fast and is expected to replace planar NAND over the long haul. Companies aiming to mass-produce these flash drives stand to benefit the most. So, memory-focused investors should invest in companies that are moving forward with new technology.

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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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

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That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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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