Key Factors to the Rise of SSD Market – from the Standard Perspective

Taiwanese DRAM packaging and testing industry analysis Part II; Key Factors to the Rise of SSD Market – from the Standard Perspective
Published Nov.18, 2008
Taiwanese DRAM packaging and testing industry analysis Part II
Accompanied with the severe DRAM over supply and the global economic slow down, the DDR2 1Gb eTT chip price has plunged from the beginning of the year US$1.76 to the current US$0.92 in 2008, with a 48% drop range, and the DDR2 667 1Gb chip dropped even reached 53%. Besides, the DRAM industry has been through near two long years of loss and recently even the chip price fell below the variable cost. The DRAM vendors are facing insufficient cash in hand and cash outflow, and it’s the matter of survival or out of the game. From September, vendors such as PSC, Elpida, Hynix, Promos, and Inotera all announced production cut one after another. Industry wise, the production has reduced 13%. All these once again reflect how harsh the DRAM market is for all the players.
While facing the frozen age of DRAM industry, the vendors try to reduce cost, encourage employees to take day offs, and even cut ramp up volumes, to fight against the recession. All these actions affect the back end packaging and testing industry as well. According to the estimation of DRAMeXchange, the DRAM vendors had asked the back end suppliers to lower the cost of packaging and testing as supporting. The packing average price has lowered from US$0.5 in the beginning of 2007 to currently US$0.25, with a 50% drop. And the testing reduced cost by shortening the testing time, even it’s often heard in the market that some eTT are shipped without testing.

While the packaging and testing suppliers are facing the price cut pressure from the DRAM vendors and how they can gain more space for surviving, the methods of lowering cost is the top priority issue. From the packaging and testing point of view, the packing cost comes from three main parts, the M/C, gold wire, and substrate. The substrate price has dropped 30% since 2007 which helped the suppliers a lot. Meanwhile, the M/C dropped 20% and gold wire fluctuated with the gold commodity price. But packaging and testing suppliers still can bargain with the DRAM vendors over shortening the length of the wire without affecting the quality in order to lower their cost.
As far as the utilization rate is concerned, with the recession of DRAM market, we’ve seen no more 100% utilization rate. From the packaging and testing view point, the utilization rate of packaging has dropped around 30% YTD, and the testing utilization rate dropped 40%. Meanwhile, the effect of production cut began from September will start to show in January 2009, and this will put severe pressure on the utilization rate of packaging and testing. From current analysis, the DRAM packaging and testing suppliers can only wait for the downturn to go by and reduce CAPEX to survive. Furthermore, the testing suppliers which are not majorly involved in DRAM business are trying to get more orders from non-DRAM products, such as logic IC, Flash, and etc. to fill up the capacity.

About the outlook of packaging and testing suppliers next year, we will mainly focus on the speed of migrating to DDR3. From the current status of the suppliers, except Powertech which mainly takes orders of Elpida is more aggressive, the others are still conservative about the schedule of DDR3 migration. This is because except Nanya and Inotera, other Taiwanese DRAM vendors so far still have no plan for the DDR3 production. Furthermore, the testing speed of the widely used Advantest T5593 can only top 1066 Mhz on DDR3, and the purchase of new equipments will be needed while dealing with higher clock-speed DDR3, such as 1333 Mhz or even 1600 Mhz. Unless the DDR3 chip output has reached the economy of scale or protected under the long term deals of stable amount and fix customers to secure the quantity, the packaging and testing suppliers will wait until the 2H09 DRAM industry recovery to invest in the DDR3 testing equipments.
Key Factors to the Rise of SSD Market – from the Standard Perspective
SSD Alliance (SSDA-Solid State Drive Alliance;http://www.ssdalliance.org) was earlier established in Taipei. Not only upstream NAND Flash supplier, Toshiba, participates this alliance but also includes major controller IC companies, downstream module houses and non-profit research institute. Main target for SSDA is to set up standard for SSD products, especially for durability-related issue. First, this alliance would focus on standardization for SATA 2.5. It will also seek wider cooperation with other standard organization, such as JEDEC etc.

SSD Current Market Status Analysis
In 3Q08, SSD market had shown signs of slowing down since the high ASP had become an obstacle to wide adoption. Among consumer electronics applications, except certain group of users, most consumers still don’t know the product well enough which has become a problem to the popularize SSD. Currently SSD is mainly adopted on Low Price PC in the consumer electronics market and the server market will be its potential market in the future.
From a short term point of view, SSD is still limited to some certain niche applications only, mainly industrial or military usage. In consumer electronics, except Low Cost PC had equipped with SSD, only a few high end NB models adopted SSD for faster booting and better software performance. Recently Microsoft announced to loosen the limitation of the HDD capacity on Low Cost PC from 80GB to 160GB, and resulted in lowering the originally high expectation of SSD adoption on Low Cost PC. Now HDD is still the main stream data storage parts of NB, and major PC OEMs do have concerns about adopting SSD on regular NB especially its price, reliability, and duration. In the next two to three years, HDD will still be the major data storage device option for NB.

Key Factors for SSD application expansion
A. NAND Flash Price Trend is Still the Key
Take 16Gb NAND Flash chip as example, it has dropped over 60% since the beginning of 2008. Although NAND Flash price has dropped sharply, the price gap between SSD and HDD is still quite large. Now the price per GB of SSD, which is still between US$ 4 and 5/GB, is still higher than US$ 0.5 /GB of HDD. The price gap needs to shrink for SSD to boom. In the short run, SSD won’t have the condition to enjoy fast growth.
B. From Related Applications
It still takes better stability and reliability to expand the spectrum of SSD adoption. As for NB market, although certain portion of Low Cost PCs use SSD as data storage device now, on the whole, the reliability, stability and the duration of life time still need to improve. From the aspect of data storage, customers who use SSD usually emphasize on its high speed of data transfer and power saving. Except consumer electronics market, server is another high potential application market for SSD, though it is still in the slow growing stage.
C. SSD standard development
Currently SSD vendors have different definitions about writing/reading speed, duration of product life, and other specifications of SSD. They use SLC, MLC, or combine SLC and MLC to build their SSD, and some also use DRAM as the buffer component. Different specs of SSD result in huge difference of end prices. Most system integrators adopt the SSD manufactured by the upstream NAND Flash chip makers due to the product quality and the stability of supply source. Downstream NAND Flash vendors are comparatively less competitive and sell their products mostly to retail channels.
SSD is now in a pre-standardized stage, even though now the alliance, which was formed by the vendors in the supply chain to develop standard, does exist, the final standards still rely on market consensus. The SSD product standardization can be viewed as a benchmark of whether SSD product will popularize in the future application market.