At the Flash Memory Summit 2019 in August of last year, Yole Développement’s presentation included a slide that showed a consolidation scenario that moved the NAND market structure closer to that of the DRAM industry. Part one of this scenario included the combination of SK hynix Inc.’s and Intel Corp.’s NAND businesses, while the next part involved some combination of Micron Technology Inc., Western Digital Corp., and Toshiba Memory Corp. (which is now Kioxia Corp.).
“We labeled that as the ‘End-game Consolidation’ scenario, with the hope that the industry would become healthier, allowing the suppliers to generate sustainable profits to support the billions of dollars of investments needed each year to keep moving the technology forward,” says Walt Coon, VP of NAND and Memory Research at Yole Développement (Yole).
According to Coon, they thought it made sense; they believed Intel was the first supplier that would exit the NAND market, and the most likely buyers for Intel’s NAND business would be either Micron or SK hynix. “But given the recent history between Micron and Intel, the relationship between the two companies may have been strained. Because of that, we believed SK hynix was the most likely suitor for them at the time,” he says.
With the announcement on October 20, 2020 of SK hynix’s acquisition of Intel’s NAND business—including its Dalian factory in China, its NAND-related IP, and its SSD business—for $9 billion, that analysis by Coon’s team at Yole turned out to have been correct.
Intel’s loss and SK hynix’s gain
Coon says the deal is going to realign the market, with two of the smaller players combining. “SK hynix, over the past several quarters, has been jockeying with Micron for the fourth position in terms of NAND market share. With the addition of Intel’s NAND revenue, SK hynix will likely battle Kioxia for second place in the NAND rankings, behind only Samsung,” he says.
He believes Intel’s NAND divestiture has been in the works for quite some time. “We’ve anticipated that they wanted to divest this business for quite a while. For one, they have been posting losses in their NAND business for the past three, four years; even at the peak of the NAND market in 2017, their NAND unit was still losing money,” Coon explains. “Although Intel was profitable in the second quarter this year, the consistent losses from NAND have been a drag on the overall company earnings. And I do not think NAND has turned out to be as strategic to Intel’s datacenter ambitions as they originally anticipated.”
By unloading its NAND business, Intel is expected to get a bigger piece of the overall datacenter market by focusing on 3D Xpoint technology, where they can offer a differentiated solution.
According to Coon, 3D Xpoint has only two suppliers—Intel and Micron. “Intel, by far, is the most prominent in the market today. I think they really believe this technology fills a gap in the memory hierarchy, and they want to use 3D Xpoint to take advantage of that opportunity,” he says. “This is not going to be a commodity product, and should have less price volatility relative to NAND and DRAM; so, I think they have a chance to have more control over pricing—maybe closer to the processor business that they are used to.”
For SK hynix, while the deal seems to have few synergies from a technology perspective—Intel is running floating gate technology, while SK hynix is utilizing charge trap technology—it does provide the company a strong presence in the datacenter space, especially on the SATA and PCI side—an area where SK hynix is trying to grow into.
“This deal immediately increases their presence in the SSD space. It also makes SK hynix a larger company; they have been in that low 10% market share range for NAND quite a while, while they are around 30% market share in DRAM. I think they want to have more balanced revenues across the two technologies, and this will help them get there,” notes Coon. “This acquisition also helps on the QLC NAND side, of which Intel has been the biggest supplier in the market. This is an area where SK hynix has not really participated, so there will be some opportunities for the company to gain experience with QLC NAND.”
NAND market impact
In the near-term, Coon believes the deal will not have a significant impact on the NAND market.
“You are combining two relatively small suppliers, who generally don’t compete in the same market sub-segments. So, there’s not going to be a dramatic impact on the market initially, but I think, over the long term, this could have a major impact on the market if this serves as an impetus for further industry consolidation,” he explains. “Which I believe needs to happen to make this a healthier market for all the suppliers, similar to what we’ve witnessed with DRAM. Broad industry consolidation would help limit the constant market share battles, where the smaller players are trying gain share and the larger players are trying to keep them down.”
Coon says a more balanced consolidated industry will lead to healthier market dynamics, in that companies will not have that aggressive market share tactics that you see otherwise. “And it is even more important now with Yangtze Memory Technologies Co. Ltd (YMTC) looming on the horizon,” he concludes.
About Walt Coon
Walt joins Yole Développement’s memory team as VP of NAND and Memory Research, part of the Semiconductor & Software division.
Based in the US, Walt is leading the day-to-day production of both market updates and Market Monitors, with a focus on the NAND market and semiconductor industries. In addition, he is deeply involved in the business development of these activities.
Walt has significant experience within the memory & semiconductor industry. He spent 16 years at Micron Technology, managing the team responsible for competitor benchmarking, and industry supply, demand, and cost modeling. His team also supported both corporate strategy and Mergers & Acquisitions analysis. Previously, he spent time in Information Systems, developing engineering applications to support memory process and yield enhancement.
Walt Coon earned a Master of Business Administration from Boise State University (Idaho, United-States) and a Bachelor of Science in Computer Science from the University of Utah (United-States).
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