Processor muscle is taking the back seat to memory. With demand for connected devices surging, chipmakers are drawing the attention of investors, deep-pocketed rivals and OEMs bent on conquering the data world, one where storage capacity, access and ease of use have supremacy over raw processing power that drove the growth of electronics in the PC era.
Micron Technology Inc. years ago fired the first salvo in what is shaping up as a tough fight for dominance in the semiconductor memory, helping to cut excess DRAM manufacturing capacity and consolidating the ranks of suppliers. This week, Intel Corp. and Western Digital Corp. fired the next volley by announcing equally daring plans that may restore memory chips to the top ranks of the semiconductor market.
It’s uncertain how the investment and mergers and acquisition moves by the leading industry players will play out eventually but one thing is clear: memory ICs are hot again. Roaring demand for storage from data centers and the Internet of Things, (IoT), market, combined with years of M&A activities that drove out some suppliers have turned the staid sector into one of the industry’s top markets. As demand for PCs remains tepid and as enterprise usage of digital devices shifts to the mobile spectrum, availability of newer, faster, larger, constantly available and Cloud-accessible storage has become a stronger selling point for companies across the industry.
Realizing this shift, Intel, the world’s biggest chipmaker, said it may spend as much as $5.5 billion to update its manufacturing plant in China to make memory ICs. Western Digital, too, unveiled a $19 billion acquisition offer for SanDisk Corp., adding to the raft of semiconductor acquisitions that have occurred in the last couple of years. Taken together, the moves by Intel and Western Digital point to a shift in the competitive landscape away from microprocessors and computing power into the storage and data processing segment.
“This transformational acquisition aligns with our long-term strategy to be an innovative leader in the storage industry by providing compelling, high-quality products with leading technology,” said Stephen Milligan, CEO of Western Digital, in a press release announcing the proposed acquisition of SanDisk. "The combined company will be ideally positioned to capture the growth opportunities created by the rapidly evolving storage industry."
Western Digital executives described storage products “as the enabler of the data driven economy” and said they expect data usage to surge at a 40 percent compounded annual growth rate between 2013 and 2020 to 44 zettabytes, from 4.4 zettabytes. The combination of Western Digital and SanDisk would create the No. 1 global leader in storage technology with more than $19 billion in long-term revenue, compared with $16.6 billion for EMC and $1.9 billion for Intel, a supplier of NAND memory components in addition to its core microprocessor products.
SanDisk and Western Digital said they see the total addressable storage market for their combined entity more than doubling to $76 billion by 2017 from $37 billion in 2015. Western Digital included in its calculation for the storage market emerging technologies being championed by a growing group of companies, including Intel. These technologies include enterprise solid state drives (eSSD), the market size of which is seen jumping in two years to $13 billion from $7 billion this year. The addressable market for other storage devices will be as high as $30 billion, according to a Western Digital estimate.
In the meantime, though, growth is expected to be anemic in the hard disk drive (HDD) market, a core segment of operation for Western Digital. The planned acquisition of SanDisk will help the company reduce its exposure in the slow-growing HDD market while participating in the faster solid state storage segment, company executives said. “The combination will drive revenue diversification across multiple categories,” they said.
Intel executives know only too well the significance of revenue diversification. The company has been moving over more than one decade now to increase revenue growth from newer markets and has successfully used this strategy to offset slower growth in its core microprocessor business. Intel, in the third quarter, reported sales of its Client Computing Group fell 7.5 percent, to $8.1 billion, from $9.2 billion in the year-ago quarter. However, sales in the Data Center division, which harbors the company’s memory unit, and the IoT division, rose 12 percent and 10 percent, respectively.
“Overall, we are seeing a weak PC client business being offset by strong growth in the Data Center, Memory and Internet of Things businesses,” said Stacy Smith, Intel’s CFO, during the company’s third quarter conference call with analysts. “For the full year 2015, we expect the memory business to grow at a fast pace.”
Intel isn’t just relying on current technology to make a splash in the memory market. The company was once a leading suppliers of DRAM in the electronics industry but it exited the sector decades ago to focus on PC microprocessors when Japanese chipmakers poured into the memory business. With the client computing market under stress and declining, Intel is once again shifting investment resources into new areas, including the memory market, company executives said. The plan to upgrade the company’s plant in China into a producer of NAND devices is part of the longer-term goal of diversifying revenue growth, they noted.
“The non-volatile business has been very good to us and it has grown at a better rate than we even anticipate,” said Brian Krzanich, Intel’s CEO. “We need to remember that more than 80 percent of what we sell are enterprise SSDs that are going into Data Centers so we’ve made a very tight connection with that market. We tied our NAND business very closely to the Data Center business and we see a lot of synergy in the products, efficiencies and the performance of these products as we go to market and talk to our customers.”
Krzanich explained that the company expects to pour more investment into other memory products, including 3D NAND, eSSD and 3D XPoint. This may be why Intel has decided to upgrade the China plant to make NAND memory components, which it could sell directly to OEMs and contractors in the country. Intel also said it is investing in 3D Xpoint products, a new group of nonvolatile memory that rival Micron said “can help turn immense amounts of data into valuable information in real time,” making them valuable to the IoT world.
“In the next year and beyond, 3D NAND will drive high volume, better cost and performance,” Krzanich said while presenting the company’s third quarter results. “Enterprise SSDs and 3D XPoint will transform how memory and storage work together and, again, we will target the Data Center and have that very close crosslink between these. I think you will see 3D XPoint in many-many other products as the value of both memory, storage, and performance start to play out in a variety of applications, IOT, mobile, all over the place.”
For now, though, Western Digital’s acquisition offer to SanDisk indicates the market consolidation triggered years earlier by Micron when it purchased other DRAM vendors in Europe and Asia still has some legs to play out. Just as the PC microprocessor war eventually reduced the number of combatants to only a handful of players dominated by Intel, it is likely the ongoing battle for supremacy in the memory world could result in the elimination of more of the weakest players.
Intel and Western Digital made their moves this week. Others, including EMC, Micron, Hynix and Seagate, could be next.