The Impending Chinese NAND Apocalypse

The NAND flash market has been doing quite well recently. Prices have risen nearly 50% from their lowest levels last year. Combine Covid-19 with the resulting economic slowdown and NAND spot prices are falling again. They are down 9% from the peak earlier this year. These Covid-19 headwinds pale in comparison to the impending NAND apocalypse brought on by Yangtze Memory Technologies Company (YMTC). YMTC will have ~110k wafers per month of technologically competitive NAND production by mid-late 2021. Good for 6%-8% market share depending on the mix of process node.

The key aspect here is technologically competitive. Due to poaching a lot of South Korean engineers, YMTC’s progress has been nothing short of extraordinary. Tech Insights has torn down the 64 Layer TLC NAND that is currently shipping and ramping. They have found that not only do all of YMTC’s claims play out, but their process exceeds others with similar layer counts. In the same die area, they match or exceed competitors without stacking multiple NAND dies.

The array efficiency and memory bit density are considerably higher than conventional 3D NAND such as Samsung 64L V-NAND and KIOXIA/WD 64L BiCS NAND. For example, YMTC 64L 256 Gb die bit density is 4.41 Gb/mm2 which is higher than Samsung 64L 256 Gb die (3.42 Gb/mm2), and comparable to Micron/Intel 64L CuA FG 256 Gb TLC die (4.40 Gb/mm2). The NAND memory array efficiency on the die for YMTC 64L is greater than 90%.

This is due to their innovative Xtacking architecture. For NAND, the periphery and array gates have quite different requirements. Fabricating them on the same wafer introduces compromises or requires more time to integrate. With Xtacking, YMTC fabricates the periphery on a separate wafer and uses wafer on wafer bonding to package the two. The strategy of separating cell and periphery is one that Intel and Micron first used this with their 64 layer NAND and they dubbed this CMOS-under Array (CuA). SK Hynix uses a similar technology and they call it 4D NAND. Samsung has yet to disaggregate these two components but looks to be doing so at the end of this year with Cell on Periphery. In the case of Micron, SK Hynix, Intel, and Samsung, the memory and periphery are all built on the same wafer. This achieves cost benefits, by only having to use 1 wafer. However, it increases lead times for developing and ramping new process nodes.  YMTC’s rapid transition to 128 layer NAND next year is partially due to the disaggregation of these two components.

The ability to rapidly match on technology will allow YMTC to ramp and take a sizable market share in a short timeframe. Grabbing 6-8% market share may sound insignificant, but it will be extremely impactful due to the elasticity of NAND demand. The NAND market shifts in price very quickly with as large as 3%-4% swings many weeks. The supply chain can react to increase demand, but this is a long process. Consumer electronics such as smartphones and laptops take months to react to these price changes and datacenter SSD spending has cycles of large purchases and digestion. Additionally, although competitors project growth out of the Wuhan based NAND fab, they are not prepared for how rapid the ramp in production will be.

Many analysts and firms are projecting as low as 4% market share for YMTC by the end of 2021. SemiAnalysis believes that they will be incredibly surprised with how quickly YMTC ramps. We believe YMTC will have 50% to 100% higher output than many in the industry are projecting. NAND fabs have large lead times and are massive capital expenditures. All this means the supply from other fabs cannot react instantly. As the Chinese NAND enters the marketplace, the market will not be prepared to deal with the fall out.

Once 128 Layer 1.33Tb QLC NAND ramps, YMTC will look to build a giThe short-term pain is nothing compared to what will happen in the long-term. With the new cold war kicking off, the Chinese look to wean themselves off foreign imports in critical areas. Due to this fear, there will be heavy investment into the domestic semiconductor industry via large capital investment and subsidies. The “Made in China 2025” goal requires 70% of semiconductors to be domestically produced. China will have an imbalance, and NAND corrects this imbalance. Logic will still be imported to a large degree, but with NAND, China will look to be completely self-sufficient. Once 128 Layer 1.33Tb QLC NAND ramps, YMTC will look to build a Giga-fab with these government funds. The largest market for NAND will no longer be an importer. In short, the NAND market will have a lot of market turmoil due to this rapid shift from China.

The apocalypse occurs with the current players. SemiAnalysis projects that within the next 5 years, at least a few of the companies with a NAND fab will consolidate or sell their stakes. Intel will likely sell or stop investment and keep their Dalian fab as a token to the Chinese government. Kioxia will start to lose money, and who knows what Bain and the investors will do once this occurs. Micron and SKHynix will go through a lot of turmoil as well, and lean more on DRAM to stop this bleeding. These NAND companies which rely on DRAM will need to be wary as Chinese DRAM will wreck that market only a few years later. The only player that we believe will be able to stay in the green with the NAND business is Samsung. We can’t be sure exactly how this plays out, but NAND will become a complete commodity in the semiconductor space. Investors should be wary of any further investment in this market.

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