Counterpoint has been tracking Intel’s Non-Volatile Memory Solutions Group (NSG) performance for years since it’s one of top NAND flash players. Intel recently announced its Q3 2019 financial results, and most of its business verticals reported record revenues. The Data Center Strategy Group (DCG), Internet of Things Group (IOTG), and NSG all hit record revenues during the quarter. Even the Client Computing Group (CCG) hit the highest revenues in four quarters. Of note is the performance of Intel’s NSG business that delivers NAND Flash memory products, which continues to face challenges, but is finally showing promising signs for the future.
The NSG business set a record high of US$1.29 billion, a 37.2% and 19.3% growth quarter-on-quarter (QoQ) and year-on-year (YoY), respectively. This is because a majority of Intel’s NAND Flash is used to support its DCG business, which generated revenues of US$64 billion in Q3. The Exhibit one shows Intel’s quarterly NSG performance from 1Q16 to 3Q19.
However, while NSG’s revenues were at a record high, NSG’s operating loss of US$499 million, remains a concern. The company attributed the operating loss during the third quarter to decreasing NAND prices and the absence of an expected grant associated with Intel’s NAND factory.
Intel’s main markets are high-performance computing, financial services, cloud service providers and the Internet of Things. It lacks other applications, such as smartphones, to increase sales. Therefore, its cost will be higher than other competitors because of smaller economies of scale.
Further, Intel has fewer opportunities to sell its NAND flash business. Most of its 3D NAND flash is used to support its data center services. It converts 3D NAND Flash from 64 layers to 96 layers and then to 12X layers. The 3D NAND flash technology of each player somehow is different. If Intel sells its own internal NAND manufacturing facility, it may need to rely too much on other plants in the future, which will limit the development of the data center business.
Intel’s 3D XPoint can be designed for cache memory for PC, solid state drives (SSD) for both PC and server, as well as a persistent memory for servers. In fact, 3D-XPoint-based persistent memory can increase overall system performance and demonstrate differentiation. However, the adoption rate of Intel’s 3D XPoint-based cache memory in PC remains low, and it is difficult to foresee much progress. Similarly, 3D XPoint-based SSD will also encounter strong competition from Micron, which co-developed 3D XPoint.
Going forward, the operating loss of Intel’s NSG will improve as the ASP/GB is expected to be flat or decline mildly in the next two quarters. This is because the power outage at the KIOXIA and Western Digital factories and the reducing inventory has reduced the global NAND supply.
