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Introduction

Leading semiconductor chip manufacturing companies published their revenue for Q2. As many analysts expected, Samsung went on to grab the unassailable leadership held by Intel for over a quarter century! The numbers which made all the excitation was Samsung’s “$15.6 Billion”, which was well above the Intel’s “14.8 billion” during the same period. Considering that a highly positive outlook surrounds the industry as such, can Samsung continue to capitalize on the high tide or will Intel bounce back? That question forms the basis of the article and is aimed to note the various happenings and analyze their impact on holding leadership in the market.

The DRAM and NAND Market – Steering the Market Participants to a New High!

The semiconductor industry is projecting a double digit growth this year, and it is expected that over 62% of it is contributed from the DRAM and NAND market alone. Reports suggest that the increase in growth is not only a volume game, but the Average Selling Price (ASP) is also increasing due to the heavy demand from the end users. DRAM market is by far the largest with a size of over $50 Billion, and the manufacturers are planning a spend toward technical advancements in the devices, but not capacity upgrade, which will eventually result in demand that will tweak up the ASP. As far as the NAND flash market is concerned, the market is estimated to be worth of over $35 Billion as per several sources. It is believed that the capital expenditure on the Samsung’s Pyeongtaek fab will be more in the NAND flash products. The capacity addition toward NAND Flash is considered by other market players as well. However, if the market keeps the demand floating, rather than oversupply which will lead to a price drop, the pricing and hence the revenue can be controlled well. The market needs the right balance of technology advancement, volume, and price to keep the growth stable and ride the wave of mega trends and move toward sustainable growth.

Samsung – Committed to Sustain Leadership in the Memory Market

Samsung had carefully stepped up to reach the top to lead technological advancement in the memory & storage chips market, while providing value for customers with regards to cost and performance. Samsung’s focus on memory products dated back to early 2000s and had not deviated much from it since then. Continuous improvements and strong leadership in high-performance memory & flash storage chip, the DRAM and NAND flash, are held by Samsung. As the mega-trend such as connected objects, smart phones, self-drive cars, urbanization is rapidly boosting the adoption of electronics, the need for memory and data management rises sharply along with growing analytics and data centers.  The company’s strong portfolio and leadership in DRAM and NAND devices support the growth of data center, mobile, and consumer devices, apart from the booming automotive industry and so forth. Moreover, technology collaborations with industry giants such as IBM and Global Foundries had helped them to project leadership in the 7nm node. To capitalize more on the opportunity, Samsung has announced a series of high budget investment in its global production facilities. One of the significant advancement is that Samsung had begun production of its 64 layer fourth-generation NAND technology in its Pyeongtaek facility – the World’s largest single fab manufacturing plant. Furthermore, it is also reported that Samsung will invest to upgrades its Xi’an plant to produce more NAND flash chips. On the other hand, to counter the 3D Xpoint attention in the industry, Samsung has come up with a next generation Z-NAND memory chips which are expected to perform 10x faster than the V-NAND. The company projects that Z-NAND can perform on par with the 3D Xpoint, while it is also believed that the price will be lower than the competing technology. Hence, Samsung is positioned well to lead the chip market for the short-term.

Intel/Micron: A Partnership that Provides Innovation!

The processor maker and, the DRAM maker joined hands a decade ago to have a foot-hold in the storage chip market. The joint venture facility, IM Flash in Utah, produces one of the world’s best-in-class NAND flash chips. Intel and Micron not only used the partnership to produce the chips but also developed a new class of memory chips as announced in 2015. Termed as 3D Xpoint, the technology is a demonstration of innovation in the device architecture, as well as the utilization of new class of materials called as chalcogenide materials. The architecture is designed in such a way that the memory cells form an intersection between the word and bit lines, allowing them to be accessed individually, thereby integrating the functions of memory and storage into one device. The fundamental physics by which the device operates is different from the NAND flash chips, whereby the 3D Xpoint’s bit storage is through the bulk resistance change of the material itself. While the partnership between Intel and Micron has proved successful, the leadership in the market and technology dominance will be based on the cost performance and the time-to-market. It is reported that the technology would be priced in a range that would be much higher than NAND, but almost half of a DRAM device. Given that the companies want to ride the big boom in the data management market, while the world is expected to transact data in the range of zeta bytes, all the eyes are on the need for high capacity data centers which would perform faster and efficiently. While the Intel would want to gain share in the data center market, the 3D Xpoint will be a good option considering that the device holds a long life. It is also believed that the Xpoint technology might be tried for real-time analytics applications, while the NAND to be used for more batch processing and overnight processing applications. Even though 3D Xpoint will not have a considerable impact on gaining market leadership in the short-term, interest among the end users for its growth will need to be monitored. Among all the Intel’s Q2 revenue, it is reported that Non-Volatile memory solutions have the highest growth, followed by IoT group, which falls in-line with the company’s vision to be the leader in providing solutions for the smart, connected and cloud infrastructure.

Acquisition in Intel and Micron

Market consolidation is one of the key happenings in the semiconductor industry as such, where the companies are looking to expand capacity as well as to diversify the product base.

  • Intel is undergoing an evolution with restructuring in the organization and a series of acquisitions with a high focus on autonomous driving vehicles, Internet of things space.
  • Some of the notable acquisition includes Mobileye, Alterra, Movidius, Itseez, Yogitech, and so forth.
  • While Intel is trying to diversify its presence, Micron is focused on building leadership in the memory market including the DRAM with several acquisitions including the likes of Inotera memories, Elpida memories as well as the Numonyx B.V in the flash memories market.

The Toshiba Factor – Market Consolidation (or) Fragmentation? The second largest NAND flash maker – Toshiba, is trying to sell the Chip manufacturing plant to avoid a delisting in the Tokyo Stock Exchange caused due to the loss in the Nuclear business group. Toshiba is looking to sell the chip plant to cover an impact of $6.3 billion. Initially, Toshiba was likely to be sold to SK Hynix, and the sale would have brought more competition in the NAND flash market, as SK Hynix is one of the four IP holders in the market itself. However, the bid was stalled by Toshiba’s investor- the Western Digital and the Japanese funds, who did not want SK Hynix to hold a management stake, given that SK Hynix offered a funding deal with convertible bonds. To proceed with the sale, Toshiba’s reconsidered bid offers which has earned a lot of interest among the semiconductor industry, with Western Digital, Foxconn, Apple and Dell showing tremendous interest to stake claims. As of yet, a deal is not reached, but a decision is expected soon given that there is Aug 10 deadline to avoid Tokyo Stock Exchange delisting. The sale will be one of the key factors to determine the market consolidation or fragmentation which will play a vital role in determining the market leadership position. Considering a scenario wherein, SK Hynix buys the Toshiba’s chip plant, the former will overthrow Samsung as the leader in NAND Flash business.

Conclusion

Samsung’s lead will be sustainable for the foreseeable future, given that NAND & DRAM markets grow at  rapid rates on the banks of mega trends requiring large amount and speed of data processing within the value for money and the benefit that the customers get. Furthermore, Samsung’s huge amount invested in its production facilities indicates the bullish market growth. If Samsung has to capitalize on the lead, it has to give a close consideration of the cost and performance factor of its product releases combined with a market watch on its competitors who could pull down the sales. Intel and Micron are unlikely to pose a threat to the market share unless any key acquisition happens, at least for the short-term. Given that a lot of consolidation occurs in the market, M&As will continue to be one of the most important factors in gaining market leadership. Furthermore, pricing strategy, technology IPs will be some of the other factors that will play a key role, apart from innovation, time-to-market, and recovery of R&D expenses quickly. As far as the market leadership is concerned, it will be the competition of a player who has both DRAM and NAND, with a strong hold on ASP as well.

From Intel’s perspective, the 3D Xpoint technology might not win the biggest pie on the memory market. However, the company’s broadening product portfolio, combined with the restructuring plan and focus toward memory products with developments in the Dalian plant will certainly help them to have a competitive edge factor to regain the top spot. For a win in the memory market, it will largely depend on the time-to-market, the success of the technology, and its cost performance, as compared to NAND flash. Given all the factors, a look into the NAND and data center market growth combined with the aggressive investments in Samsung’s Pyeongtaek and Xi’an plants, regaining the top position will be tight unless there is an explosive growth by volume in the IoT and automotive market in the short-term. However, based on the Frost & Sullivan’s Analysis, Intel still has many ways to regain the top spot.

About Frost & Sullivan

Frost & SullivanFor over five decades, Frost & Sullivan has become world-renowned for its role in helping investors, corporate leaders and governments navigate economic changes and identify disruptive technologies, Mega Trends, new business models and companies to action, resulting in a continuous flow of growth opportunities to drive future success. Contact us: Start the discussion.

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