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Will Micron's Diversification Bring Earnings Stability?

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Part 8
Will Micron's Diversification Bring Earnings Stability? PART 8 OF 9

Is Micron’s Mobile Business Growth Here to Stay?

Micron’s mobile business unit

Micron Technology (MU) is spending extensively on research and development of flexible architecture SSDs (solid-state drives), which can be used interchangeably in the client, low-cost data center, embedded devices, and mobile markets.

One segment that has shown remarkable growth in the past two quarters is the MBU (mobile business unit). The MBU offers discrete NAND and DRAM (dynamic random-access memory), and MCPs (multichip packages).

Is Micron’s Mobile Business Growth Here to Stay?

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MBU earnings trend

In fiscal 2016, MBU’s revenue fell 30.4% YoY (year-over-year) to $2.57 billion, while its operating income fell 96.5% YoY to $39 million. The segment’s revenue fell as DRAM prices fell significantly, and the company took a little longer to secure design wins for its 14 nm (nanometer) products. Falling DRAM prices and the high initial costs of transitioning to a 14 nm node have affected its profits negatively.

However, things turned around in the latter half of calendar 2016 as Micron secured a memory chip order for Apple’s (AAPL) iPhone 7. Moreover, DRAM prices increased significantly thereby driving profit and revenue. The segment’s revenue rose 53.5% and 4.8% sequentially in fiscal 1Q17 and fiscal 2Q17, respectively.

Micron expects the total addressable market for mobile to be $31 billion in calendar 2017, of which it expects to grab revenue of $4 billion, thanks to orders from Apple and strong memory prices. This would equate to a market share of around 13% or 14%.

MBU growth drivers

Although the MBU reported exceptional growth in fiscal 1Q17, the fact that the smartphone market is slowing cannot be overshadowed. At the Analyst Day 2017, Micron’s Vice President for Wireless Solutions Mike Rayfield, talked about the trends that would push growth in Micron’s MBU.

More memory content

Mike Rayfield stated that the slowdown in smartphone sales is unlikely to impact Micron’s earnings as the memory content per device is increasing by two or threefold. The demand for memory is growing as consumers are increasingly viewing and storing content in their phones. The increasing use of social media, high-resolution videos and pictures require a lot of storage, which is pushing the memory requirement to 32 GB or 64 GB.

For this reason, handset manufacturers are increasing the DRAM content per device to boost performance. Apple increased the DRAM content from 2 GB (gigabytes) in iPhone 6S Plus to 3GB in iPhone 7 Plus. The handset maker is expected to continue increasing its memory in order to stay competitive with the likes of Samsung (SSNLF) and China’s (FXI) Huawei.

Apart from high storage, smartphones require power efficiency as consumers demand longer battery life.

In the next and final part of our series, we’ll discuss Micron’s plans to leverage its portfolio to tap growth in the mobile market.

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