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TMT <strong>Memory</strong> Devices Technology 8 October 2010 abc bring NAND capex/sales to 50%, still well below the 2005-8 average level of 67%. Other than accelerated process migration, we expect Samsung to expand its NAND production capacity probably at Fab 16, which we expect to be online next year, to compete with Toshiba’s new NAND fab (Fab 5) at its facility in Mie Prefecture, Japan; this is expected to come online in spring 2011. Global NAND capex (USDm) 14,000 12,000 10,000 8,000 6,000 4,000 2,000 - Source: Gartner, HSBC forecasts 2009 2010f 2011f 2012f Total (HSBC) y-o-y (%) 200% 150% 100% 50% 0% -50% -100% We are not alarmed by this increase. Based on our capacity assumptions for these two major new fabs and process migrations for the major vendors, we expect 2011 supply-demand balance to be similar to this year’s, at 99.6%. We expect waferdriven NAND capacity additions to hit in earnest during 2H11, by which time we believe strong demand growth can absorb the extra production. Indeed, we expect a major shortage of supply by next year, if Toshiba’s new Fab 5, and as appears possible, Samsung’s Fab 16 do not come online. Furthermore, we believe leading makers – Toshiba and Samsung – remain cautious on the rate of capacity ramp up, balancing it against bit gains from process migration and attempting to avoid the debilitating overcapacity that plagued the industry for years. From a capex/sales perspective, rising capex is not excessive, either in our view. We estimate capex/sales for the global NAND industry to approach and remain at c45-50% during 2010-11e. This is a steep increase over the anomalous c25% in 2009, but compares favourably compared to the over-build situation in 2006-08, when capex/sales varied between 58% (2008) and 82% (2007). The sharp forecast capex rise follows two consecutive years of severe cut backs, during which the vast majority of less efficient 200mm fab capacity was decommissioned. Process migration accelerates… Despite wafer adds, process migration, multi-level cells and higher utilisations following migration to immersion lithography, still drive much of the NAND bit supply growth. We forecast NAND supply growth of c114% y-o-y next year, though wafer capacity is rising c20% y-o-y, as leading vendors all migrate to 2xnm processes. Already, 3xnm has become mainstream. For Toshiba, 32nm and 24nm scale will account for c90% of its bit capacity by end of this year. The race to improve processes between leaders for cost and product competitiveness is a key feature of the current spate of bit growth. NAND process migration – Samsung Electronics 100% 80% 60% 40% 20% 0% 2007 2008 2009 2010f 2011f 2012f 8xnm 6xnm 5xnm 4xnm 3xnm 2xnm Source: Company, HSBC estimates A combination of push and pull are emboldening makers to commit capex to put as many dies on a wafer as possible, led by node migration: Strong demand (manufacturers’ consensus is for c80-90% y-o-y bit growth this year); we forecast 73% y-o-y bit growth this year. 49
TMT <strong>Memory</strong> Devices Technology 8 October 2010 abc Stronger balance sheets repaired through recapitalisation and lower losses/better profitability, and Intensifying technology competition (more advanced processes, multi-bit) to drive better margins, market positioning. We expect industry-wide migration to more advanced processes to lower cost/bit, raising margins: Samsung started mass producing 27nm-process based NAND in April 2010 (development completed in October 2009) and recently launched 27nm 32Gb MLC NAND. Toshiba started mass production of 24nmbased 64Gb MLC NAND in 3Q10, expanding to include 24nm-based 32Gb NAND and TLC at a later point. This appears ahead of its original schedule to achieve 24nm migration (X2, X3) production by 4Q10 and mass production in 2011. Like Samsung and Hynix, Toshiba’s 24nm process products have Toggle DDR to enhance data transfer speeds. Intel and Micron (IMFT – Intel Micron Flash Technologies)’s 25nm-process based 64GB NAND mass production started in 2Q10. Hynix is admittedly late to 3xnm, but believes it has caught up with leading vendors with its 2xnm migration. Hynix plans mass production in 3Q10 for its 26nm process based 64GB NAND. We believe Hynix has customer samples out for this product. current processes. By 2014-15 EUV lithography is a likely requirement for the migration to processes below 1x nm. Wafer capacity increases Wafer capacity was relatively stable in the past two years, helped by removal of uneconomic 200mm fab capacity. This year, we estimate wafer capacity to increase c14% y-o-y as process migration accelerates and additional fab capacity starts to get built out. Next year, we forecast c20% increase in wafer capacity, led by Toshiba and possibly Samsung. SanDisk/Toshiba SanDisk is focussed on upgrading processes and implementing X3 in Fab 3 and Fab 4. Fab 4 expansion. This year, Toshiba has ramped previously unused space in Fab 4, which should reach full capacity by mid-2011, i.e. by the completion of Phase 1 of Fab 5. The original design wafer capacity of Fab 4 is 210kwpm, but we expect Toshiba to produce more given throughput improvements it has made. Fab 5 finally gets the go ahead. In mid-July 2010 Toshiba started construction of Fab 5 at Yokkaichi. Notably it is capable of supporting EUV and 3D flash. Fab 5 will be constructed in two phases; SanDisk expects the fab to take several years to ramp to full capacity. Phase 1 will be producing 24nm process based NAND, whilst Phase 2, for which timing has not been decided, will produce 1xnm generation NAND. One key question that remains unanswered is capex from 2012e onwards, as vendors ponder the comparative returns on migration to 1xnm. Toshiba and Samsung remains undecided over how to tackle this issue, though both firms are evaluating EUV. SanDisk expects to be on 1xnm (X2 and X3) by end 2012/early 2013. But at that level, the technology is more ‘challenging’ than 50
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