The 3D NAND industry is poised to take off. In a research report issued last month, TechNavio said that the rising flash-storage needs at practical price points will compel enterprise clients to increasingly adopt 3D NAND drives. This will expand the 3D NAND industry by compound annual rate of 180.7% between 2013-2018, the report says. Let's understand why we're shifting to 3D NAND, and how you can profit from it.
Why 3D NAND?
The manufacturing cost of flash memory is directly proportional to its die size. Since the introduction of flash memory, manufacturers have been shrinking their fabrication process. This allows more transistors to be crammed in the same die area, thereby increasing chip density at practically no extra cost.
But the laws of physics are playing a spoiler. We're nearing a scaling limit, which essentially means that memory manufacturers can't shrink their fabrication process any further without a trade-off with economic feasibility. In simple terms, there isn't much room to increase the chip density of planar NAND modules.
Toshiba explained the possibilities of 3D NAND technology back in 2007. These flash modules are comprised of vertically stacked NAND strings, which save precious die area and allow more transistors to be stuffed in. Consequently, this boosts the chip density at practical price points.
Samsung (NASDAQOTH: SSNLF) understood the potential of 3D NAND technology, and it began the mass production of its V-NAND drives in July last year.
In its presentation, the consumer tech goods giant explained that its 40nm 3D NAND process had an equivalent lithography of 10nm planar NAND modules. Crossbar estimates that using 20nm 3D NAND process will produce an equivalent lithography of 5nm planar NAND, thereby allowing Samsung to breach the scaling limit.
Considering that Samsung has a technological head start, it will be able to debug known issues with 3D NAND drives before any of its competitors. This, in turn, will contribute in improving its V-NAND fabrication yields and result in gains from economies of scale.
SanDisk (NASDAQ: SNDK) is another formidable competitor here. The pure-play flash-memory manufacturer is working with Toshiba to introduce its own iteration of 3D NAND modules, known as BiCS. As per the agreement, about 49% of the total NAND output goes to SanDisk.
According to TrendForce, BiCS modules have already gone through their rigorous testing and sampling phase. And to mass-produce these modules, Toshiba is expanding its Fab-5. The research firm estimates that the manufacturing facility will commence operations in the fourth quarter of 2014.
An indifferent peer
Western Digital ( WDC -1.95% ), however, seems to be unaffected by this 3D NAND mania. Though the memory giant manufactures planar NAND drives, it has no intention of venturing into the 3D NAND space -- at least not yet. The company is betting on helium-filled hard drives to capture the enterprise-scale storage industry.
This indifferent approach will create an entry barrier for Western Digital later on.
- IHS estimates that 3D NAND market share is poised to surge from less than 1% currently to 49.8% in 2016. Western Digital will miss out on this explosive growth.
- Plus, Western Digital will have to compete fiercely to dislodge established 3D NAND products from Samsung and SanDisk later on.
- Moreover, as the price per gigabyte falls with the maturing 3D NAND industry, enterprise clients will increasingly adopt flash drives. This, in turn, will harm Western Digital's hard-drive business.
Therefore, it is vitally important for Western Digital to enter into the 3D NAND segment.
Foolish final thoughts
The prospects of 3D NAND definitely look good on paper. Actual growth, however, will depend on how well these chips perform against the 2D NAND chips. Investors might want to keep a close eye on upcoming benchmarks and adjust their portfolios accordingly.