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Small SSD makers losing business to larger rivals

Posted: 29 Nov 2013 ?? ?Print Version ?Bookmark and Share

Keywords:LSI? Sandforce? SSD market? hard disk drive? NAND flash?

There has been a considerable shift in the solid-state state drive (SSD) market this year. And for Abhi Talwalkar, LSI CEO, the change has been rather unwelcome. According to him, what has hoped as a path for growth for the company has been subtle at best.

Talwalkar envisioned that the market for SSD controllers from Sandforce, a startup he purchased in 2011 for $370 million, would grow as much as 35 percent this year. Instead it grew just 10 percent.

The growth Talwalkar hoped for went mostly to companies such as Samsung that started selling SSDs using its own NAND flash chips and controllers. Increasingly, the relatively small, independent SSD makers Sandforce had been selling some of its controllers to are losing business to vertically integrated giants such as Samsung, Sandisk and others.

The shift started in 2011. That's when NAND flash makers cut back capex on fab equipment, believing the memory chip market was in oversupply.

As a result, NAND flash prices went up about 20 percent this year, Talwalkar predicted. At the same time, flash chip makers such as Samsung have been more aggressively making and selling their own SSDs because they represent a more profitable business than chips.

The NAND vendors are winning business because they can make money at lower selling prices than the independents. For example, one of the independents that is a customer for LSI had to walk away from a multi-million dollar deal selling SSDs to a large PC company this year when the prices went below its costs.

"Three years ago the NAND guys had a fairly small share in SSDs and there were perhaps 50 players in SSDs," said Talwalkar.

"I believe in two to four years 70-80 percent of client SSDs will come from NAND makers and the rest will come from five to 10 independent SSD makers that have unique business models and/or focus on certain verticals markets or distribution models," he predicted, noting Kingston, Avant and OCZ among the strong survivors today.

"I have no worries about the growth of flash, the question is about in what form it gets deployed" and by whom, Talwalkar added.

Several independent SSD and controller makers—including Stec, Smart Storage, Virident, FlashSoft and Link-a-Media—have been acquired by NAND chip and PC makers as part of their efforts to get into SSDs, said Alan Niebel, principal of market watcher Webfeet Research. Top among the remaining independents are Fusion-io, Violin, OCZ, Skyera and Nimbus Data, he noted.

The NAND flash price rises in 2013 were in part fueled by reports of a fire this summer at a large SK Hynix fab in Wuxi, China. The fire only affected DRAM production, "but many OEMs bought [flash] on the fear of shortage," said Niebel

"Just based on capex [retrenchments], today's budding NAND shortage should run from 2H13 to mid-2015," said Jim Handy, a veteran flash analyst at Objective Analysis. "Since everyone except IM Flash is converting to new technologies that they have never—tried before—either high-k gate dielectrics or 3D—there are likely to be a lot of stumbling blocks that would push the end of the shortage out to 2016 or even 2017," said Handy.

For LSI, the issues are painful but manageable. Only about ten percent of its business is currently in flash-related products and it has diverse bets in the flash market, said Talwalkar.

LSI makes 17 custom versions of its Sandforce SSD controllers, including ones for Samsung and SanDisk. It also sells its own PCI Express flash cards for accelerating server applications, following in the footsteps of market pioneer Fusion I/O.

For LSI a bigger shift in 2013 came in its larger business related to hard disk drives. Last year, LSI customer Seagate commanded a bigger portion of the HDD business given its favorable supply-chain position in the wake of Thai floods.

Seagate's good fortune helped spike LSI's 2012 growth to 23 percent last year. Seagate's position and LSI's HDD-related business moderated this year, impacting LSI's overall revenues and profits that slumped about 10 and 50 percent, respectively, in the first nine months of 2013.

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