Here’s Why Enterprise SSD Is An Important Business For Micron

Strong market demand and solid operational execution helped Micron Technology (NASDAQ:MU) report another quarter of strong growth in fiscal Q3 2014. The company reported net sales of $3.98 billion, 72% higher than Q3 2013, with NAND sales rising 17% annually. Rising global mobile shipments and increasing demand for Solid State Drives (SSDs) are the most important trends driving current demand for NAND Flash products. (Read: Micron Retains Its Growth Momentum In Q3’14)

SSD is a flash memory based device, which is increasingly gaining popularity in embedded systems and laptops due to its low energy consumption and durability. In its last earnings call, Micron mentioned that Q3 was a turnaround quarter for its storage business unit in overall SSD volume, with revenues for both client and enterprise SSDs increasing more than 50% sequentially.

Micron’s main focus is on growing its own (Micron branded) SSD business in the future. The company sells Micron branded SSDs, as well as components to third party manufactures of SSDs, which together represent around 45% of Micron’s NAND business (smartphone module market is about 10% of its NAND business). The NAND Flash Memory segment accounts for approximately 30% of Micron’s total valuation as per our estimate. In this article, we discuss why growth in the enterprise SSD market is an important driver for Micron.

See our complete analysis for Micron here

Growth Potential In The Enterprise SSD Market

Improving price points have led to a decline in the cost of SSDs, resulting in higher adoption of the drives by ultrabooks and ultrathin PCs. According to research firm IHS iSuppli, SSD shipments were up 82% (57 million units) while hard drive shipments declined 7% year-over-year in 2013. IHS suppli estimates SSD shipments to grow 50% this year and reach 190 million units by 2017, which is close to half the size of the HDD market of 397 million. ^[1]

While Micron expects the client SSD market to drive a lot of volume for it, it believes that the enterprise Flash SSD segment offers greater opportunity for growth. The latter also offers higher margins. Enterprise products are used in heavy workload environments and comprised of several SSDs. In comparison, the client drives generally have a lighter workload and contain a single or only two SSDs. ^[2]

New enterprise products ranging from drives to caches to arrays have led to greater integration of SSDs into corporate storage systems. The Enterprise SSD market is expected to reach $4 billion in revenues by 2016, nearly six times that of 2011, while unit shipments are expected to increase by ten times during that period, to approximately 4 million units. IT managers have found that they can greatly reduce their IT spend while increasing throughput by replacing enterprise HDDs with SSDs. ^[3]

Source: http://marketrealist.com/2014/04/micron-ssds/

Enterprise SSD Is Micron’s Biggest Focus Within The NAND Group

Micron’s SSD business ranges from hard disk drive (HDD) replacements with SSDs for clients to enterprise-class storage solutions. The Micron-branded SSD revenue increased 76% in 2013 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. Micron firmly believes that the biggest focus within its NAND group today is growing a large and viable enterprise offering, which at present accounts for less than 5% of its NAND business. The company’s enterprise SSD solutions are suitable for server storage and caching, appliances, network-based caching, and mid to large-scale storage systems. ^[4]

Micron believes that it has built a pretty good product portfolio over time, mostly PCIe, SATA and SAS, which are all drive interfaces for the enterprise segment. PCI targets the higher end of the market while the SATA drive targets the lower end of the enterprise space. The company has the highest performance PCIe drive in the market today, but its SAS has been little bit limited just in terms of the timing of launching the products in the market. It continues to add more PCIe solutions to its portfolio and ramp up SAS.

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. The company shipped its first 20 nanometer enterprise drive in Q1 2014. Micron is aggressively working on developing its 16 nm TLC roadmap in an effort to drive overall NAND cost competitiveness. It expects to see component samples of the 16 nm TLC by the the end of calendar year with client-based TLC SSD by spring of 2015. It continues to grow its controller and firmware organizations to help align its PCIe and SaaS roadmap to enterprise customer requirements.

Micron competes with Intel (NASDAQ:INTC), which has the largest market share in enterprise SSD, followed by Samsung (OTC:SSNLF). ^[4]

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1. Computer Storage Industry Declines in 2013 Despite Robust Growth of Solid-State Drives, IHS Pressroom, February 5, 2014 [↩]
2. Important Differences Between Consumer and Enterprise Flash Architectures by Robert Sykes, Flash Memory Summit 2013 [↩]
3. Enterprise SSDs to Grow Over 10x by 2016, Storage Newsletter [↩]
4. Must-know overview of Micron Technology: A DRAMatic growth story, Market Realist, April 24, 2013 [↩] [↩]