SanDisk Sansa graduates, iPod Nano left behind or soon to skip a grade?

It’s not often I make predictions here, but yesterday I had an “aha” moment spurred by sites abuzz with Reuters report that SanDisk is launching the Sansa e280, an 8GB version of their e2xxx series for $249.99. This little device will hold about 2,000 songs, double the capacity of the similarly priced iPod Nano. Meanwhile prices on their 2GB, 4GB, and 8GB models are being dropped an average of 30%. This may sound like just another product announcement, but I believe this is much more. This is the equivalent of a shot across the bow of every MP3 player in the market and a new price war is underway.

One of the reasons SanDisk can compete so well here is that they own and run their own NAND Flash memory fabrication plants in partnership with Toshiba. NAND or “Flash” memory has been popularized by everything from MP3 players to memory cards for cell phones and cameras; development of these memory products is one of SanDisk’s core competencies. Using economies of scale to their advantage, they’re able to acquire large quantities at base price, and pass some savings on to customers, a competitive advantage few have.

But the bigger question is will Apple emerge with a new flash based player ala Nano to compete or wait? Part of the answer I believe lies in another quiet announcement made recently which hints at Apple’s upcoming roadmap.

Where is the new iPod Nano? Read the NAND leaves.
Apple, being one of the largest purchasers (and by proxy best negotiators) of flash memory destined for MP3 devices, recognized this choke point in 2005. But rather than lay out the capital cost of building their own chipfab, the entered into a $500M agreement with Intel and Micron last November helping to form IM Flash Technologies. By paying out $250M each to Intel and Micron, they’ve secured first-mover access at unparalleled pricing for NAND+ products. I call them NAND+ because IM Flash is already sampling the industry’s first 50nm scale technology for manufacturing flash, a process 10x smaller than that of facilities just coming online now.

This got me to thinking about why we still haven’t seen a new iPod released by Apple. Are they relinquishing their perceptual first-mover’s advantage? Not necessarily. My prediction is that they’re waiting until their investment in cheaper, smaller, NAND technology is ready. Smaller nm NAND flash offers higher capacities in a smaller space. Today Apple sources Flash memory from other companies such as Samsung. But production goes online in IM Flash’s VA facility later this year albeit with limited production capacity until their Utah-based facility comes online in mid-2007.

So what is Apple going to do? I’m going to make my own prediction: Apple will first start to integrate their new memory investments into an upcoming iPhone, which will have a smaller unit-volume requirement than a next-gen iPod Nano. They’ll release a phone with 16-32GB of flash memory to cater to the high-end market. In Q1/Q2, once IM Flash is ramping up, the new Nano/Nano replacement will come out, and a price battle will kick into overdrive. The smaller sized chips + lower price to Apple gives them an edge on size of device, capacity, and without a major price differential.

SanDisk isn’t going to slouch here though. They’ve started production on Fab3, their 3rd 500nm NAND production facility with Toshiba. At 500nm though, these chips will be larger than the 50nm units that IM Flash is ramping up. Either way, it will be interesting to see how the next round plays out.

One response to “SanDisk Sansa graduates, iPod Nano left behind or soon to skip a grade?”

  1. Sean, I’m afraid you’ve confused wafer size — measured in millimeters — with process size. SanDisk currently produces 300-mm wafers on a 70-nm process, as I understand it, and is scheduled to move to a 55-nm process this year. So you’re right that Apple will have a technological edge — but a 10% edge, not a 10x edge.