Can Micron Find Earnings Stability in Its Embedded Business?
EBU earnings trend
Micron Technology’s (MU) EBU (embedded business unit) was its only profitable business segment even during the downturn as it is more dependent on NAND (negative AND). In fiscal 2016, the segment’s revenue fell 3% YoY (year-over-year) to $1.94 billion, while its operating income remained almost unchanged at $433 million. The segment’s revenue rose 13% and 2% sequentially in fiscal 1Q17 and fiscal 2Q17, respectively, as NAND prices rose in the second half of calendar 2016.
The adoption of IoT (Internet of Things) would boost NAND demand significantly and a supply shortage in the NAND market would create a favorable market environment for Micron.
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EBU growth drivers, industrial, and connected home
At the 2017 Analyst Day, Micron’s Vice President for EBU Jeff Bader talked about the key growth trends that would boost the segment’s future growth. The industrial market is currently exposed to a major risk of cybersecurity. This has increased the demand for secure storage devices, thereby boosting demand for Micron’s secure memory products.
The connected home market is seeing increasing demand for 4K videos and set-top-boxes. The demand for high-definition videos is increasing the demand for DRAM. Moreover, increasing demand for content is pushing the memory demand among content developers and providers.
The automotive market
Jeff Bader stated that Micron is a leader in the automotive memory market, with about 40% share, and its nearest competitor is half its size. Samsung (SSNLF) is catching up in the automotive space, and it acquired Harman International Industries to get some share of the automotive market.
Within the automotive segment, Micron supplies memory products for ADAS (advanced driver and assistance systems) as well as cluster and infotainment fusion. It’s also a key memory supplier to Nvidia (NVDA) and Intel (INTC), which are working aggressively on autonomous cars.
Once the autonomous cars hit the road, the demand for storage would increase by many folds as a huge amount of data would be generated, processed, and stored on a real-time basis.
We’ll take a deeper look at growth opportunities in automotive in the next part.