Why enterprise solid-state drives are a growth driver for Micron

Micron’s solid-state drives

Micron said in its fourth quarter 2013 earnings call that a higher demand for SSDs (solid state drives) is driving NAND production, and that “Micron branded SSDs and sales of strategic SSD customers now consume in aggregate over 60% of our NAND trade bit.” Micron’s solid-state storage business ranges from hard disk drive (or HDD) replacements with solid-state drives (or SSDs) for clients to enterprise-class storage solutions. The products are sell the Crucial and Micron brands.

Micron’s SSD solutions range from SATA and SAS hard disk drive (HDD) replacement drives to ultra low-latency PCIe Flash storage that provide speed, capacity, durability, and power advantages for the data center. The company’s enterprise SSD solutions are suitable for server storage and caching, appliances, network-based caching, and mid- to large-scale storage systems—and as tier-one primary storage or cache behind DRAM memory in enterprise storage arrays.

NAND bits sold under Micron-branded SSDs rose 23% in the fourth quarter of 2013, primarily driven by growth in the enterprise space. The Micron-branded SSD revenue for fiscal 2013 was up 76% year-over-year and over 50% of the trade NAND revenue went to either Micron-branded SSDs or to the strategic customers who serve the SSD category with Micron’s NAND technology. In 2013, Micron’s 20 nanometer flash memory technology represented 40% of its client SSD shipments and the 25 nanometer process represented over 80% of its enterprise shipments. Micron’s management said on the first quarter 2014 earnings call, “SSDs including component sales to strategic SSD customers represented 48% of our Trade NAND revenue with consumer sales coming in at 30%.” The company shipped its first 20 nanometer enterprise drive, the M500 DC product, to a large OEM in the quarter. Plus, Micron revealed plans to begin production of a 60 nanometer client drive in the fiscal third quarter of 2014.

Micron recently launched the M550 SSD, designed to meet the increasingly demanding needs of high-performance computing, ultrathin, and media or video applications. The new drive uses the 20 nanometer multilevel cell (MLC) NAND Flash and the technology provides more storage in a smaller footprint, making it possible to pack half a terabyte of storage onto an SSD module the size of a stick of gum (80 millimeters by 22 millimeters).

Prices for solid-state drives have been declining recently, and Transcend CEO Peter Shu said in a press conference last month that he expects SSD prices to decline another 20% to 30% in 2014 due to falling NAND flash prices attributed to oversupply. Micron peer SanDisk raised its 2014 gross margin target range from 47% to 49%, as increasing SSD sales have helped the company offset the volatility in memory chips prices. SanDisk, which acquired solid-state enterprise storage player SMART Storage Systems last year, said its revenue from SSDs was up 61% year-over-year and represented 28% of its total revenue in the first quarter of 2014.

Among competitors, Intel (INTC) has the largest market share in enterprise SSD, followed by Samsung. Western Digital (WDC) is expanding into the space via acquisitions such as enterprise SSD vendor Virident for $685 million last year. The company invested $51 million in Skyera, a developer of energy-efficient storage systems with SSDs, and acquired Velobit, a maker of SSD optimization software, and sTec. These acquisitions were made a part of Western Digital’s HGST (Hitachi Global Storage Technologies) unit, which was acquired from Hitachi. HDD leader Seagate (STX), which came late on the flash storage scene, launched SSDs and solid-state hybrid drives (SSHD) such as the Enterprise Turbo SSHD that incorporate NAND flash memory into a hard drive. In the PCI Express (peripheral component interconnect express), or PCIe SSD, segment, Micron competes with Fusion-io (FIO) and LSI Corp. (LSI).

According to IHS iSuppli, a market research firm, SSD shipments were up 82% in 2013 while hard drive shipments declined 7% year-over-year. Improved price points have led to a recent decrease in the cost of SSDs and a resulting higher adoption of the drives by ultrabooks and similar ultrathin PCs. Plus, new enterprise products ranging from drives to caches to arrays have led to integration of SSDs into corporate storage systems. The research firm predicts SSD shipments will grow 50% in 2014 and are expected to reach 189.6 million units in 2017—close to half the size of the HDD market of 397 million.

Jeff Janukowicz, research director at IDC for Solid State Drives and Enabling Technologies, said IDC expects SSD shipments to grow at a 31% compound annual growth rate from 2012 to 2017. He added that one of the key reasons for this growth is the advancement of SSD technology that makes SSDs more usable for a broader set of applications and market segments.

Are SSDs a threat to the traditional HDD market?

A report by Gartner last year cited by Storage newsletter said that SSDs will complement but won’t replace HDDs in data centers during the next five toten years. The report said although SSDs will increase hardware performance, application workloads will still require software optimization. Plus, the cost per gigabit of enterprise-grade SSDs, compared with enterprise-grade HDDs, will remain at prohibitively high levels for the foreseeable future. So it won’t be economically feasible for IT departments to simply replace HDDs with SSDs within the next five to ten years.

IHS iSuppli echoed similar these thoughts. The HDD segment declined 444.4 million units, as the emergence of smartphones and tablets has dented the once-powerful appeal of computers. The research firm believes the prospects for HDD are brighter on the enterprise PC end, with businesses starting to undertake a corporate refresh of their computers as the global economy picks up, which should help make up for the decline of the consumer HDD sector. HDD technologies are also in transition from the current perpendicular magnetic recording method to next-generation mechanisms.

So IHS expects new opportunities to emerge for the HDD industry to meet growing demand for storage in the public and private cloud. The research firm said, “The HDD industry remains a behemoth on the whole, with shipments for computer-related HDDs averaging 400 million units for the next few years in spite of annual decreases, accounting for approximately half of the entire storage market.” It added that HDDs will remain the final destination for the majority of digital content, being the cheapest medium on a dollar-per-gigabyte basis compared to other forms of storage media, further ensuring the market’s continued viability.