How to Profit From the Impending 3D NAND Boom

The time for 3D NAND flash memory may have finally arrived. IHS, in its recent research report, notes that 3D NAND's share of the market will reach 49.8% in 2016 and 65.2% in 2017 -- an exponential rise from 3% in 2013. Let's understand why we're transitioning to 3D NAND, and how leading NAND manufacturers Samsung (NASDAQOTH: SSNLF  ) , SanDisk (NASDAQ: SNDK  ) , and Micron (NASDAQ: MU  ) are positioning themselves to benefit from this explosive expected growth. 

Why 3D NAND
The cost of manufacturing a flash drive is directly correlated to its die size. To lower the cost per gigabyte of these speedy drives, NAND manufacturers try to cram more transistors on the same die by shrinking their fabrication process.

However, we have reached a point where the manufacturing process can't be shrunk any further without compromising on economic feasibility and disk reliability -- something referred to as the scaling limit. This is where 3D NAND proves useful.

These next-gen 3D flash drives consist of vertically stacked NAND strings, as opposed to the horizontal stacking found in planar NAND drives. This geometry increases the chip density and saves precious die area while using the same fabrication process. 

Samsung began the mass-production of these next-gen 3D NAND drives in August last year. The consumer goods giant explained that its 3D V-NAND drives fabricated using a 40nm process produce an equivalent lithography of 10nm planar NAND flash. 

The flexibility and scalability achieved from this restacking suggests that flash drives will become cheaper and denser over the coming years. This should, in turn, drive 3D NAND's enterprise as well as retail demand going forward.

Storming ahead
Samsung is currently the only mature manufacturer to mass-produce 3D NAND drives, making it the leader in the segment. The Korean tech giant ramped up its V-NAND production earlier this month, following the launch of its Xi'an-based manufacturing facility -- which has a floor area of 2.5 million square feet. 

With a technological head start, Samsung will be able to tweak and optimize its V-NAND manufacturing process to achieve higher factory utilization rates and economies of scale relatively sooner. More important, it will be able to debug known issues associated with 3D NAND drives before its peers.

These developments should, in theory, enable Samsung to establish a foothold in the booming flash memory segment well ahead of its peers.

Gradual entry
SanDisk is another formidable beneficiary. The pure-play flash memory manufacturer, in partnership with Toshiba, is developing its Bit Cost Scalable, or BiCS, 3D NAND technology, with its primary focus on reducing cell-degradation rate and cost per GB associated with flash drives. 

To facilitate the mass-production of these next-gen 3D drives, the corporate couple announced last week that the Yokkaichi-based planar NAND manufacturing facility would be demolished and a dedicated 3D NAND fab will be constructed in its place. Production will start in 2016.

SanDisk and Toshiba's gradual entry into the world of 3D NAND will make it easier for Samsung to succeed in the segment. But considering that the industry is expected to grow at a scorching pace at least till 2017, SanDisk and Toshiba will have a chance to catch up later on.

Treading carefully
Micron, on the other hand, is following a wait-and-see approach. The chipmaker has already developed its 3D NAND technology, but is yet to deliver them for sampling tests. Explaining that this is a strategic move, the CEO of Micron recently had this to say:

We decided that we're not going to sample for now, we like our relative competitive position and where we are relative to what we hear others might be. And so we're going till we're a little closer to volume production before, we unnecessarily expose ourselves by getting samples out there in the market place.

Management intends to unveil its iteration of 3D NAND modules by the end of 2014. After its rigorous sampling tests, it is estimated that the chipmaker will commence the mass-production of its 3D flash drives in the second half of next year. This would give Micron ample time to plan, improvise, and benefit in the expected boom in the 3D NAND segment.

Foolish final thoughts
At the moment, none of the discussed companies have commented on the tentative pricing and performance benchmarks of their respective 3D NAND drives -- factors that determine the adoption rate of new technologies. Investors, therefore, should keep a close eye on these metrics and expose their portfolio accordingly.

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