4DS Memory Ltd (ASX: 4DS) – Misunderstood and mispriced

Article written by Pitt Street Research. For the full report click here

4DS Memory (ASX:4DS) is a semiconductor development company aiming to provide an enterprise grade storage memory for cloud and data center storage markets. The company is developing a proprietary Interface Switching ReRAM technology leveraging expertise from a strategic partnership with a leading data storage player.

On 20 September, 4DS Memory Ltd (ASX:4DS) updated the market on its collaboration with nanoelectronics R&D hub imec in Belgium (IMEC).
The company indicated that upon analysis of the first batch of 300mm wafers from IMEC, it had identified several required process modifications. This update wasn’t well-received by investors, judging by the more than 40% share price decline on the day of the
announcement.

On track to meet development roadmap

However, as the company has previously indicated, its collaboration with IMEC to migrate 4DS’ interface switching ReRAM technology from lab to fab would require multiple iterations to the manufacturing processes to achieve the optimum set of memory cell and memory chip characteristics.

IMEC is the interim step on the way to commercial production

One of IMEC’s core competencies is to help semiconductor companies, such as 4DS, transfer its R&D fabrication processes to production compatible manufacturing processes.
The equipment used in IMEC’s facilities is essentially the same equipment as used in commercial high-volume fabs. If 4DS demonstrates their memory technology is manufacturable at IMEC’s facilities, using commercially available state-of-the-art semiconductor equipment, the company can then engage in commercial discussions with potential licensees or strategic partners.

Migrating from lab to fab is not simply copy/paste

For 4DS, the key point of working with IMEC is (i) to develop a transferable production-compatible process flow for its Interface Switching ReRAM technology, (ii) to demonstrate this process on IMEC’s megabit test chip, and (iii) to collect statistically significant and meaningful data on yield, speed, endurance and data retention for high-volume memory makers to base their licensing or acquisition decisions on. But fabricating memory cells in an R&D lab is very different from manufacturing multiple wafers using state-of-the-art semiconductor manufacturing equipment at IMEC, let alone manufacturing in a commercial setting where processing speed and up-time is essential.

Equipment differences may lead to process differences

Different semiconductor manufacturing tools may need slightly different processes to achieve the same specifications. Variations in temperatures, exposure times, etc. may lead to variations such as uniformity of layers, crystallinity (the way atoms and molecules are arranged) of the materials used etc. Additionally, IMEC’s expensive production-level fabrication equipment uses 300mm wafers (which is the standard wafer diameter for high-volume, high-density semiconductor fabrication) while 4DS’ more affordable R&D equipment uses smaller wafer sizes. To process wafers of a larger size in high volume requires different tools. Even if a specific process step were similar in nature, the simple fact that the wafer is larger, and the tool is different may require tuning of several production processes.

Therefore, it is near-impossible to get a technology transfer from lab to fab fully optimized the first time around. The transfer process typically requires a few iterations and they were planned for in the IMEC agreement. 4DS expects the next batch of wafers from IMEC in 1Q 2019 (March quarter).

4DS’ design to be mounted on IMEC’s megabit memory vehicle

Once 4DS and IMEC complete the memory technology transfer to 300mm commercially available semiconductor manufacturing tools, the next step will be to mount this memory technology on IMEC’s standard megabit memory vehicle with all the required circuitry to connect memory cells using 4DS’ interface switching ReRAM technology to the outside world.

Integrating the memory cells with the megabit memory vehicle is done in back-end-of-line (BEOL) processes, which is the latter stage of the chip manufacturing process. BEOL is not to be confused with the back-end/packaging process, which involves cutting individual chips from the wafer, soldering electrical leads and packaging them using black resin or
plastic.

Compared to transferring the core chip design from lab to fab, integrating this design with IMEC’s megabit memory vehicle should be relatively straightforward given IMEC has done
this numerous times and the platform is a standard design. It will require some rigorous testing, though, specifically for yield, speed, endurance and retention. With all memory cells in a memory chip, they are accessible and testable at standard memory speeds – rather than individually as is the case in 4DS’ lab setting.

Completion of technology transfer is the final hurdle before commercialization

In our view, completion of these steps will be required before commercialization cancommence or a trade sale can take place as prospective licensees or potential acquirers of the company will want to see the technology working in a megabit memory. Whoever licenses or buys the technology will likely want to further fine-tune the technology for specific applications. E.g. a memory manufacturer will want to tweak the technology further to suit a specific memory application, such as data-center or smart phone.

However, this further fine-tuning is beyond 4DS’ current scope of work as the company envisions any prospective licensee or acquirer will conduct their own final tweaking of the
technology.

Buy rating reiterated

We believe 4DS’ technology transfer process has not been well-understood by the market, judging by the share price response to the 20 September announcement. In our view, the company is on track to deliver megabit memory vehicle results and a licensable production-compatible process flow to the semiconductor industry within the next 12 to 18 months. Alternatively, a trade sale should be possible as well. As such, we believe the company’s current valuation doesn’t do justice to the prospect of 4DS licensing or selling the technology within the next 12 to 18 months. Furthermore, as illustrated in Figure 1, peers such as BluGlass (ASX:BLG) and BrainChip (ASX:BRN), which are at a similar stage of development (BLG) or slightly ahead (BRN), are valued at more than twice 4DS’ current valuation.

For these reasons we reiterate our Buy recommendation for 4DS as well as our price target of A$ 0.11 per share.

FIGURE 1: VALUATIONS OF ASX-LISTED SEMICONDUCTOR COMPANIES

Company                   Code       Semiconductor sub sector        Share price    Market cap (A$ M)
Weebit Nano            WBT        Filamentary ReRAM                  0.029             46.2
Strategic Elements  SOR         Printable memory ink               0.057              13.8
BluGlass                    BLG         Semiconductor equipment       0.255              106.8
Brainchip                  BRN         Artificial Neural Networks       0.125              123.0
4DS Limited             4DS          Interface Switching ReRAM    0.053              51.1

Source: TMT Analytics

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Pitt Street Research work is commissioned by the listed companies it covers, and Pitt Street Research has received or will receive payment for the preparation of such work. Please refer to the bottom of the research notes as published on Pitt Street Research’s web site for risks related to the companies being covered, as well our General Advice Warning, disclaimer and full disclosures. Also, please be aware that the investment opinion in this report is current as at the date of publication but that the circumstances of the company may change over time, which may in turn affect our investment opinion.



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