Intel is exploring its options on self-manufacturing NAND flash memory and may buy in from third party suppliers.
The revelation came from CFO George Davis, speaking last week at a Morgan Stanley Analyst Conference (recording, here). Intel makes 3D NAND chips in Dalian, China but has been unable to sell enough SSDs, using those chips, to generate profits.
Intel’s options include stopping operating its own NAND foundry and buying in chips, or even sourcing complete SSDs from a third party. Alternatively, it could sell chips to third parties. But there is another dimension to Intel’s NAND puzzle – Optane.
Davis told the assembled analysts that NAND flash is an Intel big bet, with NAND in the data centre becoming more and more important. But “we have to have profitability, long term profitability and attractive returns… we haven’t been able to generate the profits out of that to get the kind of returns that we would like to see.”
This pretty much repeats what his boss, CEO Bob Swan, said in April last year, when he discussed weakish Q1fy19 results. Swan said Intel was evaluating NAND manufacturing operations because the business was unprofitable. “We [have] got to generate more attractive returns on the NAND side of the business… And to the extent there is a partnership out there that’s going to increase the likelihood and/or accelerate the pace, we’re going to evaluate those partnerships.”
Eleven months later and Davis is singing off the same hymn sheet. At the Morgan Stanley bash he said a NAND glut and price cuts had made selling SSDs in 2019 more difficult. But things have now changed: “When we look at the demand picture, there’s still critical shortages on NAND. So I think, you know, that that’s got a good tail wind with it.”
He added: “We’re going to look at ways of improving profitability, not only in terms of how we manage the business every day, but also in looking at partnerships and other things where we can perhaps improve the overall economics of the investment.”
Blocks and Files thinks Intel setting up its own 3D NAND manufacturing operation was a mistake, and not securing an in-house supply of XPoint chips is also a mistake. In our view Intel should convert the Dalian plant to make 3D XPoint chips and buy in NAND chips from Micron, or another supplier.
The situation is: Micron wants to use XPoint chips in its own storage-class memory product and Intel has no XPoint fab of its own – yet it has a 3D NAND fab in Dalian producing unprofitable chips.
Intel has nicely tweaked its CPUs and only its CPUs to exclusively use 3D Point memory products. AMD processors don’t have this integration, and nor do IBM POWER CPUs or ARM processors. Intel has a near-captive market and cross-selling opportunity for its Optane brand memory. That could lead to profitability once it sells enough of the chips.
To explain the background for our thinking, let’s revisit Intel Micron Flash Technologies, the joint venture between the two companies to make flash memory that dissolved in October last year.
IM Flash Technologies
Intel and Micron formed a joint venture to make flash memory in 2005. IM Flash Technologies built flash chips only for Intel and Micron, which sold their own SSDs using the chips. At its peak the JV managed three fabs, two in the USA and one in Singapore.
But in 2013 Intel dropped a bombshell when it said it would sell its stake in two of the fabs to Micron. Also, it said the companies would revise their agreement so that both could work on 3D XPoint. This is the faster-than-NAND, slower-than DRAM technology (known as storage-class memory) that Intel puts into its Optane brand products.
So Intel built more NAND chips than it needed, sold flash fab capacity back to Micron to reduce its excess supply, and looked to 3D XPoint for future business.
Enter 3D XPoint
Later that year Intel dropped bombshell number two, by announcing it would build its own 3D NAND chips at a new fab in Dalian, with initial output slated for the second half of 2016.
The third bombshell landed in October 2018, this time from Micron, which declared its intent to buy out Intel’s share in IM Flash Technologies. The acquisition was completed a year later and the agreement entailed a contractual obligation by Micron to supply XPoint chips to Intel.