Samsung Expanding 3D-NAND, Needham & Company Notes (MU) (SNDK)

Comments from Samsung on 3D-NAND could impact Micron Technology (NASDAQ: MU) and Sandisk Corp. (NASDAQ: SNDK). According to Samsung's release it is expanding 3D NAND, not cutting.

Needham & Company analyst Rajvindra Gill commented, "Samsung reported earnings last night. We highlight the following issues that should have a direct effect on our coverage universe: 1) contrary to recent noise that Samsung is cutting production of 3D NAND, it appears based on the earnings release that Samsung is aggressively expanding 3D NAND (V-NAND) across all of its SSD segments and will increase the supply of V-NAND going forward; 2) DRAM demand was strong in C4Q, driven by new server and data centers, and growth should continue into C1Q led by server DRAM and mobile DRAM; and 3) possible signs of stabilization in smartphones (solid sales of the Note 4) and more prudent inventory management."

Gill highlighted:

• Seeing some signs of stabilization in smartphone shipments? Possibly. Samsung saw a “Slight Q/Q decrease in smartphone shipments which was offset by increased ASP, as smartphone sales were driven by high-end smartphones, such as the Galaxy Note 4. ” We believe Samsung is being more prudent with its March ramp and potentially managing inventory more carefully for the June quarter to avoid inventory corrections seen in the past.
• Expanding supply of V-NAND. We believe Samsung will have a second-gen 3D NAND (32 stacked layers) product TLC SSDs for PCs. Samsung purports it will achieve cost parity with 2D NAND in 2015/2016. We note each of these transistors is 30nm, which leads to better endurance, and are stacked on top of each other to optimize capacity/volume ratio. In 2014, Samsung announced 24 layers VNAND, now 32 layers, and eventually will come to 100 layers. Part of the benefit of VNAND is its cell-to-cell interference-free structure, which generates 10x the endurance, 10x erase program cycle, 2x performances, and 40% less power consumption compared to 2D NAND.
• DRAM fundamentals look sound. “The Memory Business saw strong demand in the fourth quarter for DRAM products, such as the DDR4, driven by new server platforms and data centers. Stable demand for PCs also contributed. NAND products also enjoyed strong demand in the fourth quarter, mainly due to new smartphone launches. For the Memory Business, solid earnings are expected on the back of DRAM products equipped with differentiated technologies, such as the DDR4, while the company will continue on with the 20-nanometer process migration."
• Samsung gaining share in client SSDs. We believe Samsung was aggressive on the pricing of client SSDs which led to market share gains at Apple. Samsung on its earnings release mentioned: “…for NAND products, high-density SSDs for PCs and enterprise use are expected to increase, and growth in demand for new high density products is expected...”

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